The ONS confirmed today that inflation (Consumer Prices Index (CPI) – the official measure of inflation) for the last 12 months to February, has jumped to 2.3% ahead of predictions and the Bank of England’s target is now walloped.
With inflation looking like it’s on the rise, many may have forgotten or don’t know how this eats into your savings and pensions in real terms.
What is your definition of “risk”? People often think of cash as a “no risk” and although the hard value in cash of yours is safe, in real terms with inflation its not.
With over £1 trillion on deposit, a considerable amount of that money is earning less than inflation – basically this means you’re going backwards.
Higher inflation hits pensioners harder than others because they spend a disproportionate amount of their income on essentials like food and utilities. Those in draw down or thinking about it (of income) will need to be a bit more careful of eating into their pot.
The surprise in size of this rise could see more members of the BoE Monetary Policy Committee change their thoughts on a rate rise. Last time it was 8-1 against.
Gilt yields could drift higher and Sterling could rise a tad.
For savers, pensioners and anyone relying on interest for their income, an economic climate of low rates and rising inflation is a bit worrying. If you have not reviewed your portfolio or asset allocations recently now might be a very good time.
If you’re thinking of what other options there are to cash or shifting a percentage of the assets in your portfolio around to avoid some of these negative real returns then discuss with an adviser.
…and remember, ask yourself what is your definition of risk and what risk you’re prepared to take…
If you need any help/advice enquire here.