SWT Wealth Management
Advertising feature: The cost-of-living crisis is on everyone’s minds at the moment. The rising cost of fuel, energy bills to name a few, has pushed inflation to 7.25% in April 2022, the highest it has been since 1991. The latest Bank of England forecast has inflation peaking at 10.2% in the fourth quarter of 2022. Source: Office for National Statistics, Institute for government.org May 2022
What is inflation? Inflation is the increase in the cost of goods and services in an economy. Its measured using the Consumer price Index (CPI). This measures changes in the prices of goods and services over time, such as petrol and food. This index is the ‘official’ measure of UK inflation, and it helps the Bank of England set inflation targets. Rising inflation in turn reduces the buying power of money over time, especially if incomes and savings are not increasing at the same rate.
Why is the rate of inflation going up?: Gas prices increases has been caused by a number of factors. Higher demand for gas from Asia, depleted gas storage supplies in Europe, unexpected outages in Liquified Natural Gas production and the conflict between Ukraine and Russia. These have all contributed to the large price increases. The Pandemic also saw the shutdown of factories in Asia, which has caused a shortage of semiconductors, an important component in common consumer goods. This has pushed up the price of second-hand cars as consumers switch demand towards used vehicles. Global shipping costs have also increased, as shipping firms reduced capacity during the pandemic in anticipation of reduced demand. The Russia /Ukraine crisis has increased these economic stresses. The dangerous security situation in Ukraine has also prompted many companies to temporarily close factories. Ukraine is a major exporter of agricultural commodities such as grain and sunflower oil. Disruption to the supplies of these commodities could lead to a further significant increase in global food prices. Sources: Institute for government.org May 2022
What is the financial impact of inflation on your household and your savings?: ou cannot just consider inflation rates on their own, you need to compare them to your earnings. If your savings generate a lower return than inflation, the real value and buying power of your money is falling. If your income is not keeping pace with inflation, your income will buy less than it used to. Put very simply, and ignoring the impact of compounding, if your bank account pays 1% interest but inflation is 2%, after 10 years you will have 10% more money, but the goods and services you purchase will cost 20% more. In real terms, you’ll effectively be 10% poorer. The more time passes, the more damaging it is. The Official CPI figures are based on a basket of goods containing a selection of items for people of all ages and incomes. It rarely reflects our own personal inflation rate. As an illustration, a personal annual CPI rate of 4% would reduce the spending power of £100,000 to around £67,000 after 10 years. After 20 years it will have lost around 55% of its value and after 30 years your £100,000 would have the purchasing power of around £30,000 today.
It has never been more important to review how your savings are held. If all your monies are sat in cash deposit but are for longer term needs including retirement, having a savings and pension review to try and ensure that your money is being given every opportunity to have a better hedge against inflation over the longer term, is something that now needs to be considered.
The value of an investment with St James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.
An investment in equities will not provide the security of capital associated with a deposit account with a bank or building society.
SWT Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products.
To find out ways we can help visit: www.swtwealth.co.uk or contact us on 029 2252 0168 or 07946183512