The results are in and we are facing a hung parliament with the prospect of a coalition government, where no party has the required 326 seats to claim victory. What does this mean for us and our country? With sterling suffering its biggest one day drop since October, coupled with European economy instability, should we be worried? Who will lead our country to economic recovery? With national debt soaring and the markets losing confidence in the UK how can we protect our own finances?
We have seen a hung parliament only 5 times in the past century, all during times of economic difficulty. In 1929 a hung parliament led to a minority government, with Ramsay MacDonald again becoming prime minister. The following years saw the economy deteriorate, sterling was in grave danger and unemployment was at its highest level since unemployment records began in 1921.
The Current Factors
Economic chaos in Europe
The impact of political and economic discontent in Europe has been seen on the streets of Greece. With their government debt rated as ‘junk’, the Greek economy needs to be saved by a £86bn EU and IMF bailout package. Economists warn of the risk of this ‘debt crisis’ spreading to Spain, Portugal, Ireland and possibly the rest of Europe, including the UK.
Financial markets in turmoil
News of a hung parliament managed to cause the pound to fall by 2% against the much troubled euro as concerns mount over the ability of a weak government to maintain control over national debt. On top of this, fears of the Greek debt crisis spreading internationally have resulted in sharp stock market falls right across the globe, with the UK FTSE 100 index having fallen by over 6% since the start of May.
Already weak job market
With UK unemployment already standing at 2.5 million in April, the highest level since 1994, the British economy is in a weak position to ride this storm. The economy is struggling to support jobs having had only two quarters of positive economic growth in the last eight. Given that interest rates are already at historical lows and public debt so high, neither the government nor the Bank of England have to power or means to support growth.
We need to learn from our past experiences. We need a strong government to make clear-cut decisions on cutting our public debt which is now well over 50% of National GDP. If people lose confidence in our ability to pay our debts then the European Union and the International Monetary Fund will have to do it for us, if the funds are even available. You can then add us to the list of casualties alongside Greece.
How will other countries and investors view our hung parliament? Indecision, no direction, all leading to one response, panic in the markets and a very fragile economy looking at a double dip recession.
We will all be worrying about the security of our jobs. With higher business costs and us all tightening our belts, job cuts are inevitable. This loss of economic confidence could well lead to the loss of thousands of jobs and homes across the UK; we are a long way from the light at the end of the tunnel.
Tom Conner at Drewberry Insurance says “The combination of a weak government, mounting debt levels and spreading economic disorder in Europe has the potential to cause a significant double dip recession and we need to be prepared.”
Protecting Your Income and Your Family
It is important we make personal provisions for the difficult times ahead. Whether this means cutting back on your spending habits, putting a larger proportion of your income aside or insuring your financial obligations. We all need to reign in our spending and find ways of reducing our own debts and protecting our family’s and our income.
- Put at least 10% of your income aside to provide a cushion in times of need.
- Utilise your ISA allowance, making use of the tax-free savings environment.
- Clearly lay out your spending habits and cut out any unnecessary costs. Particularly reviewing your utility bills, insurance premiums and debts.
- Purchase income protection or mortgage insurance to protect your finances from the risk of forced unemployment.
- Learn new skills to set yourself apart from your peers at work, demonstrating your value to the organisation.
Drewberry Mortgage Insurance is a London based independent insurance intermediary helping to protect the finances of individuals throughout the UK.