Interest rate guessing games, tax-free savings and moving house

A short one today folks after a hardcore week. Also moving house over the next few days and so there are removal guys everywhere and of course Sky cut the WiFi off too soon and there’s 53 hour wait on hold with stupid hernia-inducing music despite my call being very important to them :0) Aaaagh.

In jollier news, some new data out today shows that the UK economy grew a tiny bit in February (0.1%, woop woop), as it did in January. Nothing to set the world on fire, but it’s going the right way. Manufacturing is stronger and construction was weaker – blamed in part on the horrendously soggy February. Nonetheless it’s growth and that’s what we want to see.

On the back of this news, the FTSE 100 is on track for a record high as there are signs that we’re on track to emerge from what is called a ‘technical recession’. Go FTSE, go FTSE.

Elsewhere, economists are all a’ tizzy because US inflation was higher than expected for March – 3.5%. The longer this stays high, the slower interest rates will fall over there, because the Fed will want to slow inflation and dampen rampant spending - so they keep interest rates higher to give the economy a chill pill. Talk is that rate cuts in the States may now not happen until November.

It also means interest rates will probably stay higher for longer over here. Or slow less dramatically.

With one eye on what might happen to interest rates, DIY investors have been gobbling up ‘gilts’ – these are effectively loans to the UK government which pay us interest in return. Buying gilts is a way of locking in attractive ‘yields’ now AND investors won’t pay any tax on profits made on the price of the gilt.

Let’s cut through the gobbledygook with an example. There is the ‘Treasury 0.25% 31/01/2025’ gilt, for example. Which would cost you about £96.60 to buy today on any major investment platform – such as Hargreaves Lansdown, interactive investor and AJ Bell, for example.

“Hello, Mr Hunt”, you say, “here is my loan of £96.60 and in return you promise to give me £100 on 31/01/25, I won’t pay any tax on this £3.40 gain, and you pay me an ‘interest rate’ of 0.25% too.”

Given that we pay more tax than ever on interest from savings accounts (basic-rate taxpayers can earn £1,000 in savings interest per year with no tax, higher-rate taxpayers just £500 and additional-rate taxpayers nowt), for people with large dollops of cash, this is a very appealing tax-effective option worth exploring.

Over and out for now. I have the corkscrew and kettle to hand, 2 cross teenagers with no WiFi (hee hee), and a furious-looking cat! Thank God for gin.

Holly

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