How to protect YOUR money from Rachel Reeves’s economic meltdown: Finance guru JEFF PRESTRIDGE talks to Britain’s top experts to reveal what you need to do NOW

Then, if rates do rise over the coming weeks, they have secured the best deal they can. If rates fall, they can ditch it and find an even better one.

‘The next base-rate decision is in February, but we have the latest inflation figures before that, which will give us a better indication of where things are heading,’ she says.

‘We’re watching closely to see if this changes.

Assuming the gilt was not held inside an Isa or Sipp, it is a better option than having money in a savings account (because most of the return is from the capital gain, not the coupon).

If these debt costs keep rising, she will have no choice but to either curb government spending (fat chance) or, God forbid, fleece taxpayers and businesses with even more tax rises.

 

What to do NOW to safeguard your mortgage, holiday cash and savings

MORTGAGES

Swap rates, which are used by lenders to price their mortgage deals, inched up following the bond market turmoil. However, that has not yet translated into higher mortgage rates.

David Coombs, head of multi-asset investment at Rathbones Asset Management, believes higher gilt yields are not just a headache for the Chancellor. They are also detrimental to both businesses and households. He explains: ‘They push up mortgage costs and other domestic loan rates. This has a negative impact on consumer spending and could tip the UK economy into recession.’

This meant an investor could buy the gilt assured of a tax-free capital gain of 4.17 per cent provided they held it until maturity. On top, they would receive 0.13 per cent annual income – taxable if not held inside an Isa or Sipp. So, a total annual return of 4.3 per cent.

Annuity providers buy long-term gilts – bonds issued by

If the latter option is chosen – so far, the Government has indicated further tax rises are not on Ms Reeves’ to do list – it will trigger a spiral towards economic calamity. Ben Kumar, head of equity strategy at investment house 7IM, says: ‘Sentiment about the UK has been hurt by the fear that the economy may be entering a period of stagflation – little growth but persistent inflation.

Are the wheels coming off Rachel Reeves’s ‘wagon’?

As a result, annuity rates have risen by 70 per cent since their low in 2020, according to William Burrows, who runs The Annuity Project and is a financial adviser at Eadon & Co.

As for businesses, Coombs says that higher gilt yields are particularly negative for companies with lots of debt. ‘Corporate loans tend to be charged at a premium over government bond yields,’ he adds.

‘You may want to wait until closer to the summer, as by then hopefully the pound will have regained some strength,’ he says. ‘The dollar rose by around 5 per cent after Trump’s election, on the basis that his policies would be positive for the US dollar. That has been priced in already.

While experts are divided about the outlook for UK equities, they are unanimous about the attraction of locking into attractive UK gilt yields. Kumar of 7IM says: ‘Rising government bond yields may be a thumping headache for Labour, but they provide a great chance for investors to lock into some chunky returns.

Khalaf did the same calculation for 0.5 per cent Treasury Gilt 2029. Last Wednesday it was priced at 85.71p.

ANNUITIES

Those looking to lock in their retirement income may be able to secure the best deal since 2008.

‘If rates start to rise it tends to be the more specialist lenders that move first, followed by the mainstream ones.’

But for holidaymakers going to Europe in the summer, he suggests they may want to buy some euros now.

An annuity allows you to swap a pension lump sum earned throughout your working life for a guaranteed annual income – either for a set period or until you die.

That is because the pound does not look weak against the euro even following last week’s drop in value, so is less likely to strengthen over the coming months.

That means holding a broad church of equities – shares and funds, both UK and overseas and assets such as gold or funds that track the gold price. Online bullion trader BullionVault says 30 per cent of its clients hold gold as a portfolio diversifier.

Political allegiance may determine your answer to this question, but financial markets are adamant in their opinion.

‘Combined with a 2024 Budget that ushered in more borrowing, and the current uncertainty worldwide over the inflationary impact of the tariffs threatened by Donald Trump, investors are asking for a little more return interest in order to lend to the UK.’

He adds: ‘Investors need to do their maths when they trade, which makes buying gilts for more experienced investors with a head for numbers.’

He adds: ‘If you can buy into a UK gilt providing a risk-free annual return of between 4 and 5 per cent, even a poker player would think it’s a better alternative than the stock market, which, on average, will give you an annual return of between 6 and 7 per cent. The potentially extra juice that an investor can extract from equities begins to look less attractive.’

GOVERNMENT BONDS WITH AN OVERSEAS MIX

Some investors may prefer to obtain their UK gilt exposure through a bond fund that invests across a range of individual bonds.

Hollingworth suggests that borrowers whose current mortgage deal expires within the next six months should lock in a new one now.

David Hollingworth, associate director at broker L&C Mortgages, says: ‘Some have shifted up, some down, but we’re not yet seeing panicked lenders rushing to remove deals or reprice them upwards.

For those who are comfortable with holding individual UK gilts – and like their numbers – website yieldgimp.com provides information galore on the returns investors can earn from holding specific UK gilts until they mature (note: I found it somewhat overwhelming).

However, Rachel Springall at rates scrutineer MoneyfactsCompare suggests that if there are murmurings that interest rates will not drop as soon as previously expected, that will be a good thing for savers.

HOLIDAY CASH

The pound fell by over 1 per cent against both the US dollar and the euro last week.

For example, savings bank Aldermore has already tickled up rates for those taking out new fixed rate savings bonds.

As Rachel says, it’s not all bad news, especially on the cash-savings front and for those looking to turn a pension fund into a stream of lifetime income through the purchase of an annuity.

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