The recession struck in earnest this year, but not everyone ended up worse off. We identify the winners and losers.
This was the year the recession ceased to be a notional figure for economic output and started to bite in people's wallets. Officially, we moved out of the double-dip recession, but most people's day-to-day finances are unlikely to have improved.
Interest rates may still be low, but banks have been raising the cost of credit cards and overdrafts. Meanwhile, lending restrictions remain tough, so not all have benefited from a wave of low-cost mortgage deals. Unsurprisingly, many took a more cautious approach with their money, saving rather than spending, and reducing debts particularly as uncertainty around job prospects remain.
But despite this despondency, the stock market had a reasonable year, with good returns from unexpected quarters such as Europe and smaller companies.
Below we look at the winners and losers for 2012.
= WINNERS =
This year saw the launch of the cheapest mortgage deals ever helped by the Government's new Funding for Lending scheme. The Co-op led the way with a five-year fixed-rate deal priced at 2.79pc, though a number of other banks offered similar deals at less than 3pc.
But these home loans were available only to borrowers with 40pc equity in their home, so first-time buyers, "second-steppers" and those mortgaged to the hilt did not benefit.
Mark Harris, chief executive of SPF Private Clients, a mortgage broker, said: "Being able to fix for five years at less than 5pc is historically a great deal, so mortgages pegged at less than 3pc are too good an opportunity to miss. "Those with the biggest deposits got the best mortgage deals this year, but we are starting to see a little more choice and keener rates for smaller deposits."
House prices have remained fairly static over the year, with Nationwide saying that prices fell modestly while Halifax and the Office for National Statistics recorded a slight increase. These national figures masked significant regional variations, though, with strong rises in London but steep falls in Northern Ireland and parts of Scotland.
The past year has been one in which it paid to take a risk with your money. Equities have been volatile but started and ended the year strongly, delivering better returns than gilts or cash. And it is higher-risk equities that have delivered some of the best returns.
Smaller and mid-cap companies have outperformed their larger FTSE counterparts, both in Britain and in overseas markets such as Europe. The UK Smaller Companies sector was the best-performing, rising by 20pc over the year, compared with a 10pc rise in the FTSE 100 (FTSE: ^FTSE - news) .
Jason Hollands of Bestinvest said: "It has been a notably strong period for UK smaller companies and mid-caps. These stocks tend to be more geared into general market movements, underperforming on the way down and strongly outperforming on the way up."
The best-performing funds of the year (see above) fished in these waters, delivering returns of around 40pc to investors.
After three successive years of high demand driving prices upwards, there were fears that the bond bubble would burst in 2012.
But those who stuck with the asset class have not been disappointed yet. Most fixed-interest investments delivered good returns in 2012. Again, though, the "risk premium" paid off. Patrick Connolly of AWD Chase de Vere said: "High-yield fixed-interest funds are up by 19pc, strategic bonds are up by 13pc, while corporate bond funds are up by just 12pc."
In contrast, index-linked gilts ultra-safe bonds issued by the Government are down by 0.22pc.
= LOSERS =
High street banks
It has been another annus horribilis for our banks. Those who thought their reputations could not sink any lower were proved wrong. NatWest suffered a catastrophic computer failure in June, which resulted in millions of customers being unable to access their money, in some cases for several weeks.
Others were mired in scandal: Barclays (LSE: BARC.L - news) was fined £290m for trying to rig a key lending rate, Libor. HSBC (LSE: HSBA.L - news) was fined a record $1.9bn (£1.2bn) by the American authorities for failing to have adequate money-laundering controls, while closer to home it had to pay almost £30m in compensation for mis-selling long-term care investments to the elderly. Lloyds did not escape unscathed, reserving a further £1bn to cover the ongoing and escalating cost of mis-sold payment protection insurance.
With interest rates held at a record low of 0.5pc for the fourth successive year, the outlook for savers in 2012 was always going to be bleak. But conditions have been even worse than expected, with the Funding for Lending Scheme prompting further rate cuts because banks no longer needed to attract retail depositors to fund their mortgage lending.
Sylvia Waycot of Moneyfacts said: "The rates paid on deposit accounts have plummeted to all-time lows since the introduction of this scheme."
Since January more than 350 accounts have been withdrawn, most being replaced by lower-paying alternatives. Almost 200 were withdrawn in November (Xetra: A0Z24E - news) alone, as banks slashed rates on best-buy accounts. Ms Waycot said the vast majority of high street accounts no longer paid a "real" rate of return, once tax and inflation had been taken into account.
People approaching retirement
Annuity rates reached their lowest ever level this year, bad news for anyone about to retire. According to Billy Burrows of Better Retirement Group, annuity rates fell by 8pc this year, as a result of lower gilt yields, increased longevity and the start of "gender-neutral" pricing, which prevents insurers using sex to set rates.
This lowers the annuity incomes paid to men, who typically don't live as long as women but buy the majority of annuities. There was one sliver of good news, however: insurers agreed to a new code of conduct that should mean more annuity buyers getting "enhanced" rates to reflect health conditions. The code comes into effect next year.
There have been protests about numerous tax changes this year, from the "granny tax" (which will see the higher personal allowance for pensioners phased out) to the farcical pasty tax, and the news that those earning £50,000 or more face a tax charge on their child benefit payments in 2013.
But while few relished paying additional taxes, there was a similar furore about those trying to legally sidestep such charges. Jimmy Carr, Starbucks and Amazon were among those "named and shamed" for their tax arrangements.
Meanwhile, Britain's most senior taxman, Dave Hartnett, caused outrage by saying that people who paid cash-in-hand for goods or services were "diddling the economy". While there have been renewed attempts to clamp down on "aggressive" tax avoidance schemes, politicians reassured voters that they wouldn't be penalised for paying builders, cleaners or child minders in crisp £10 notes.
Another year, another change to the pension rules, which serves only to erode trust in these long-term savings plans.
The lifetime limit for tax-free pension savings fell from £1.8m to £1.5m in April (Paris: FR0004037125 - news) , and the Chancellor announced in the Autumn Statement that it would be reduced again to £1.25m in 2014. At the same time the annual limits will be cut from £50,000 to £40,000.
However, September saw the start of automatic enrolment, which, over the next few years, should see all employees enrolled into a company pension scheme. Tom McPhail of Hargreaves Lansdown (LSE: HL.L - news) said: "This had a good start, but it is doomed to fail unless we do more to encourage workers to save for the long term. Building a stable pension framework would be a good start."
Bank of Mum & Dad
It proved to be another expensive year for the Bank of Mum & Dad. Jonathan Harris, a director of mortgage broker Anderson Harris, said: "The Bank of Grandma and Grandad has also been doing more than its fair share." The average deposit for a first-time buyer is 20pc of the property price, and it is estimated that parents stumped up £1.3bn to help their offspring get a foothold on the housing ladder.
Ray Boulger of John Charcol, the mortgage broker, said other losers included those with interest-only mortgages, who would have found it increasingly difficult to remortgage this year.
= Best fund of the year: Standard Life UK Equity Unconstrained =
This fund, managed by Ed Legget, delivered a 42pc gain for investors over the past year (figures taken to December 18). The fund, which holds a relatively concentrated portfolio of stocks, has a high turnover. Tom Purdie of FundExpert said it was one of the most volatile funds in its sector, but, when the market went up, "the fund performance rockets". It is largely focused on industrial, financial and consumer services companies, although it has a strong bias towards mid-cap rather than FTSE 100 stocks.
= Worst fund of the year JPM Natural Resources =
The price of gold bullion may have glittered in 2012 rising by another 8pc but its lustre has not rubbed off on the companies that mine and process the precious metal. This is bad news for investors who piled in to the £1.6bn JPM Natural Resources fund in recent years they lost 13pc of their money over the past year.
Other gold, mining and commodities funds have suffered: Investec Global Gold and BlackRock Gold & General both fell by about 10pc over the year.
Jason Hollands of Bestinvest said: "The explosive growth in the ETF [exchange-traded fund] market has made it much easier for investors to trade physical gold and this has undoubtedly left mining stocks the traditional proxy for gold exposure languishing on the sidelines." He said sentiment towards precious metal miners was also affected during the year by the unrest in Lonmin (LSE: LMI.L - news) 's platinum mines in South Africa. The slowdown in Chinese economic growth has also had an impact on these funds, as has reduced global demand for commodities.
However, Darius McDermott of Chelsea Financial Services said gold shares had historically outperformed the gold bullion price, so there is the potential for some uprating of gold mining shares, which would boost these funds.
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