In June 2024, the Bank of England announced they had achieved their inflation target of 2%. So, what does inflation mean for savings and investments? Let’s look at how you could be affected and what you need to know so you can plan.
Recent inflation decrease
At the time of writing (June 2024), the Bank of England had hit its target of reducing inflation to 2%. This is the lowest rate of inflation for three years. But in real terms, this does not mean that prices are necessarily decreasing; they are just increasing more slowly in some areas. Therefore, the cost-of-living crisis is not over yet, and fluctuations in petrol and food prices will affect the economy.
Data from the Office for National Statistics (ONS) showed that the slowing of price rises for food and non-alcoholic beverages has helped to ease inflation. There has been a monthly fall in the price of vegetables, bread, cereals, chocolate, confectionery, sugar, jam and syrups. The ONS data also showed a fall in the price of furniture and household goods, as well as recreational and cultural goods and services. However, the cost of fuel rose slightly.
Ultimately, when prices fall this means a little more money in your pocket, but there could be further changes ahead. Following the general election and over the upcoming year, the economy will also be affected by the chosen strategy by the winning political party. As with any change in government or policy, the financial markets can be affected.
Due to the ramifications of the controversial ‘Mini Budget’ from Liz Truss in 2022, there may be a gap before the next Budget is held. The Mini Budget caused concerns because the Chancellor did not wait for the Office for Budget Responsibility’s (OBR’s) assessment. The OBR assesses the economic impact of policy announcements. Therefore, this time round, there could be a 10-week wait for the OBR to review the elected Government’s policies.
Inflation and interest rates
The problem with high inflation and high interest rates is whether you are actually making a profit from your savings. Put simply, when inflation is high, your money is worthless. So, you need to find a savings account or investment that offers a higher return than the rate of inflation.
At the present time (June 2024), the Bank of England has decided to maintain the 5.25% interest rate. While the interest rates are still relatively high, it’s a good time to check that you are making the most of your savings strategy. There are various types of savings account available with attractive interest rates. Some savings accounts are online only, and others may limit access to your cash but offer higher fixed rates.
If you’re close to the personal savings allowance or you’re paying tax on your savings interest, then you could consider a Cash ISA. This is a tax-free ‘individual savings account’ which could also offer high interest rates. If you are a basic rate taxpayer, your personal savings allowance threshold is £1,000. This is reduced to £500 for taxpayers with a higher rate.
It’s also important to review your current investment strategy, especially across any sectors sensitive to interest rate changes. As a result of high service sector prices, high-end services, luxury goods, and certain asset classes may be affected. A sensible approach is to diversify your investment portfolio to help ensure stability and growth.
At this stage, there is no certainty in how the markets will perform or be affected over the next 12 months. This is why a long-term savings and investments strategy is always the most suitable approach to financial planning.
Wealth Managers, Nottingham and Lincoln
At Balance: Wealth Planning, our financial planning team can help you manage your wealth, including your pensions, savings and investments. We will carry out a review and help you create a sensible financial plan that aligns to your values, aims and aspirations. Our team use sophisticated cash-flow planning software to help you model your financial future. We will create a forecast allowing you to see different outcomes from your financial decisions.
Our team can also advise you on retirement and inheritance planning. Our aim is to ensure you have enough money to support you today and throughout your retirement. We can help you maintain your wealth and build a legacy for the next generation.
If you would like advice on savings and investment strategies, get in touch.
Sources:
(Supplied email)
Wilsons accountancy email
https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising
