The Bank Of England expects inflation to spike at 3.7% between July and September 2025 due to higher energy prices, water bills, insurance premiums and bus fares. Let’s wait to see how it all plays out. We believe the NI increases will filter through to create further inflationary pressures.
What is happening to UK interest rates?
The Bank of England cut rates to 5% in August 2024, to 4.75% in November and again to 4.5% in February. With the unexpected drop in inflation, there were no real changes to borrowing as the forecast for inflation is still a bit bleak.
In February, Governor Andrew Bailey warned that the Bank's approach to future cuts would be "gradual and careful" because of increased economic uncertainty.
The Bank expects inflation to spike at 3.7% between July and September 2025 due to higher energy prices, water bills and bus fares.
They then think inflation will drop back towards the 2% target towards the end of 2027, having previously predicted this would happen earlier in the year.
What happened in the Spring Statement?
In short, nothing too exciting. The Chancellor, Rachel Reeves MP, delivered a pretty flat Spring Statement focused heavily on cuts to welfare spending to meet the fiscal rules and fund additional spend on high-tech defence. The Chancellor has kept her promise to avoid any further tax increases. Let’s see if the chancellor can keep her promise to avoid any further tax increases going into the Autumn 2025 budget. It is highly anticipated more tax raises will come later in 2025.
The key points are:
Growth to reach 1% in 2025, 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. Hardly reaching for the stars at the moment!
Further crackdowns on tax evasion are predicted to increase the tax take by £1 billion a year.
Late payment penalties will increase for Making Tax Digital from April 2025.
Defence spending will be increased by £2.2 billion this financial year, moving towards the full 2.5% of GDP target.
A £400 million ‘defence innovation budget’ will be created, offering significant opportunities for technology and manufacturing businesses.
Extra funding for affordable housing, with training funds for bricklayers, carpenters and other trades.
End Of The Tax Year!
There have been a lot of changes this year. Make sure you are maximising your tax positions and the key things to consider due to the changes this year.
Income tax and National Insurance
Pensions
Capital Gains Tax (CGT)
Using current-year exemptions and allowances
Abolition of the remittance basis and introduction of a new residence-based regime
Inheritance tax
Tax administration
Some of the biggest problems we are seeing with our clients at the moment are that individuals with total income in excess of £125,140 pay the additional rate of income tax, currently, 45% on most income, although certain individuals with income between £100,000 and £125,140 are subject to an effective 60% tax rate owing to the tapered removal of the personal allowance. If you are in this position, reach out asap to discuss your options.
How Do All Of These Changes Affect You?
If you are a director of a business reading this, the NI situation will have a knock-on effect directly on your costs of operating. From 6 April 2025, Employers' National Insurance Contributions (NIC) will increase from 13.8% to 15%, while the threshold - the point at which employers begin to pay NI on an individual’s salary - will be reduced from £9,100 to £5,000. The measure, announced in the Autumn Budget, is estimated to impact 940,000 employers who are due to see an increase in their NIC liability as a result, according to HMRC. From an employment cost perspective, this might be a good time for employers to review salary packages.
Employment Allowance will increase from £5,000 to £10,500 and is no longer restricted to employers with previous secondary NIC tax bills of £100,000 or less. This change, will provide some relief to the increase in Employer for the smallest employers.
Make sure you get your affairs in order for the end of the tax year! Reach out if you need help with anything from tax advisory to pension planning.
Borrowing Money? It is clear that there are too many global economic factors that are causing a lot of risk. Advice on large borrowings is more important now more than ever. Make sure you are structuring your debt correctly to weather any storm which could be on the horizon. 5 year SWAP money is currently higher today than it was a year ago, essentially meaning 5 year fixed price lending was cheaper this time last year.