The full story: what a 9.4% inflation rate means for your money

By now, you will be aware that UK inflation has soared in the last year. According to the Office for National Statistics (ONS), inflation reached 9.4% in June 2022 – a 40-year high.

As you may already know, the rate of inflation reflects the overall price of goods and services around the country. So, this high rate of inflation is indicative of a widespread surge in prices – from food, to fuel, to electronic items, and everything in between – leading to what is being described as the “cost of living crisis”.

If you are concerned about the impact of the cost of living crisis on your wealth, you aren’t alone. Indeed, the ONS reports that 77% of adults felt “very or somewhat worried” about the cost of living crisis between April and May 2022.

You might be wondering: “why is inflation so high?” In truth, there are multiple factors that might contribute to high inflation at any given time, and in today’s world, we are experiencing a number of them at once. These include:

• Global supply chain issues stemming from the Covid-19 pandemic
• An increase in demand following the reopening of businesses after lockdown
• The Russian invasion of Ukraine in February 2022, which contributed to rising fuel prices across the west.

Read on to learn how high inflation might affect different areas of your wealth.

Your pension contributions could lose priority in an age of high inflation

Your pension is an important asset, and in a time of rising inflation, it’s crucial to continue contributing to it as best you can. If you have lowered or even stopped your pension contributions since the cost of living crisis began, you may find this has a significant impact on your later-life income.

Indeed, a survey published by FTAdviser in May found that more than 50% of Brits are failing to save any extra money into their pension pot, in addition to the contributions made by their employer.

Keeping up pension contributions is crucial. If you are struggling to contribute as much as you’d like into your pension, speak with your financial adviser for guidance.

Your cash savings may lose value in real terms

In June 2022, the Bank of England (BoE) raised the base rate to 1.25% – the highest it has been since 2009 – in an effort to curb rising inflation. So, the good news is, your cash savings might be seeing more positive returns this year than in the previous decade.

However, in a time of rising inflation, your cash savings may be losing value in real terms. As costs rise, any interest you earn on your savings is unlikely to match the inflation rate in today’s world.

So, if you’re investing with a time frame of five years or more, it could be wise to consider using your investments as avenues for growing your wealth, rather than prioritising cash savings.

Your investments could act as a viable savings alternative when inflation is high

Although it may not seem as if there is a correlation between investing and inflation, your portfolio could be affected by rising costs.

Indeed, when the base rate increases in response to high inflation, consumer spending often slows. So, if the companies in your portfolio experience a drop in consumer spending, this may affect the value of your investments in the short term.

Long term, however, investing can be a fantastic way to yield positive returns. While past performance is not a reliable indicator of future performance, a long-term investment strategy might help maintain your wealth to align with your goals, no matter the rate of inflation.

At Chancellor, we work with expert investment managers who can help provide your wealth with ample opportunities to grow. To learn more about how we manage your portfolio, read our complete guide to how we manage your investments for more information.

You may experience a dip in disposable income

According to the Office for Budget Responsibility (OBR), in 2022, the UK is forecast to see “the biggest fall in living standards in any financial year since ONS records began (1956/57).”

For example, if any pay rises you receive this year are lower than the rate of inflation, your “real” income will have fallen.

So, it could be wise to consider budgeting options that help you weather the storm of inflation that we are currently experiencing. Although high inflation won’t last forever, speaking with your financial adviser during times of economic uncertainty could put your mind at ease.

Get in touch

Working closely with your financial adviser during a time of high inflation could bring you invaluable peace of mind. Additionally, your financial adviser can help you assess your financial circumstances and adjust during this period if necessary.

For bespoke guidance on how inflation might affect your money, email info@chancellorfinancial.co.uk or call 01204 526 846 to speak to an adviser.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.