It's looking abysmal for Blighty

Walking, running and swimming. Simple pleasures – my first time on the island since before Covid-19 struck, plunging the world into lockdown.

Although a patriot of good old Blighty, a big chunk of me wishes I hadn’t returned and instead just kept on walking in the beautiful Tramuntana mountains, lost in my own thoughts and my own little cocooned world, occasionally listening (nostalgically) to past editions of "Desert Island Discs" with Sandie Shaw, Cecil Arthur Lewis (do Google him), et al.

Selfish? Yes. Parochial? Yes. Understandable? Yes.

What a time it was to be off work. While away, I took time out from my meditations to listen to Queen Elizabeth II’s funeral, courtesy of Radio 4 (the BBC at their very best). Boy, our trains may be running irregularly and the NHS may be crumbling before our very eyes, but we still don’t half excel when it comes to pageantry.

Whichever way you look at things and whatever your politics, it’s hard to see any shafts of optimism in amongst the gathering gloom.

Also, while I was away in sunny Mallorca, I listened as the prime minister’s bold plan to rejuvenate the economy, based primarily on tax cuts, literally unravelled as soon as it was unveiled. Financial markets saw through the numbers pretty quickly, resulting in a series of U-turns that keep on coming.

What a monumental cock-up. The result? Money, billions of pounds of it, thrown at the markets to stabilise gilt prices in the wake of Liz Truss’s and Kwasi Kwarteng’s gung-ho economics.

Soaring mortgage costs for anyone wanting to get on the housing ladder, and just as alarmingly, sky-high rates for those coming off fixed rate loans taken out two, three or five years ago. We’re not out of the woods yet. Far from it. Indeed, we’re trapped in unyielding bracken.

Spending cuts, to be unveiled by Kwarteng at the end of this month, are going to be vicious, although maybe not sufficient to convince markets that the government intends to get the country’s public finances back on an even keel. 

The warning issued from the Institute for Fiscal Studies that fiscal tightening in the region of £60bn will be required gives us a good idea that much pain lies ahead.

Benefit payments rising in line with inflation as previously promised? I’m not sure. While a U-turn may please the markets, I imagine it will widen fractures in the Conservative party and bar a miracle, condemn the government to electoral defeat in 2024.

I am sure belt tightening will soon become the order of the day.

Let’s not beat around the bush. We face challenging times as a nation – politically, geo-politically and economically. Whichever way you look at things and whatever your politics, it’s hard to see any shafts of optimism in amongst the gathering gloom.

Although the restaurants in my home town of Wokingham still seem to be doing all right, especially on a Saturday night, and a rather chic one has just opened (the Grasshopper Cocktail and Wine Bar) – I fear this is the calm before the storm.

For many households, I am sure belt tightening will soon become the order of the day as higher energy bills start to eat into their disposable income.

Maybe the real financial pain will come in the New Year as interest rates continue to rise, energy bills start jumping in price, and the economy slumps into recession – triggering job losses. I hope I’m wrong, I really do, but I can’t see a way out.

To make matters worse, a housing crash cannot be ruled out. Some economists are already saying the outlook for the housing market is the worst since the 2008 financial crisis, with prices forecast to fall by 13 per cent next year, according to Oxford Economics.

Savings rates are rising, but by nowhere near enough to counter the erosive impact of inflation.

I’ve not mentioned geo-politics, but there seems no end to the ongoing brutal war in Ukraine. When and how this assault on Ukraine ends, nobody knows the answers to. It’s all rather scary and frightening. And of course, we can’t rule out an escalation of tensions in the Korean peninsula, nor increased Chinese belligerence towards Taiwan.

What all this means for financial markets is continued uncertainty. Of course, savings rates are rising, but by nowhere near enough to counter the erosive impact of inflation. Equities remain the best way of building long-term wealth, but the case for equities will be a hard sell while stock markets remain volatile.

Debt reduction, me thinks, is currently the soundest strategy in town. But it’s easier said than done when many households are struggling to make ends meet against a backdrop of rising bills.

How all this ends I do not know. Probably with Keir Starmer holding the keys to the door of Number 10. Whether he can rejuvenate this great country of ours is anyone’s guess. I’m not convinced, although I hope I’m wrong.

I hear Mallorca calling.

Jeff Prestridge is personal finance and wealth editor of the Mail on Sunday