Interest rates could be affected as it was announced today that inflation hit 2.5% in the 12 months leading up to June. Interest rates have fallen in the wake of the COVID-19 crisis and the Bank of England’s decision to lower its base rate to 0.1%. While the central bank’s base rate has stayed the same for something that doesn’t stay so static is inflation.
He said: âRising inflation now threatens to undermine improving finances, eating away at the future purchasing power of money that languishes in savings accounts in an era of ultra-high interest rates. low.
âDon’t be fooled by small increases in cash savings rates: the real interest rates on cash savings are negative after inflation is factored in.
âIt is very wise to set aside money for short-term needs and unforeseen emergencies.
“But holding too much cash wealth for prolonged periods of time when the scarecrow of higher inflation stalks the land is a sure way to get worse in real terms.”
Mr Hollands warned that inflation could be “coming for savings” and therefore urged careful thought on the matter.
Highlighting the issue of low interest rates, he suggested an alternative approach that could ultimately benefit savers.
This, he said, created a mix of investing and saving in cash in order to generate “returns above inflation.”
Investing, however, comes with risk, although it can get somewhat publicized depending on the investments a person chooses.
It is considered to be one of the main ways in which individuals can grow their money by taking risks.
Britons should be aware, however, that investing could mean they are getting less than they actually invested.
Investing is also a long-term endeavor, and as a rule, people are encouraged to stay invested for at least five years.
This allows them to overcome peaks and troughs in the market and hopefully emerge financially stronger.
However, many have suggested that the rise in inflation is likely to be a “temporary blow”.
The Bank of England’s monetary policy committee is forecasting a transitional 3% hike and seems to reassure the British about the increases.
Inflation is believed to subside on its own in due course.
Some, however, are not entirely convinced, with Ulas Akincilar, Head of Commerce at INFINOX, saying: âWith each passing month the rising inflation makes the surge feel less like a jolt. Inflation is still not that high by historical norms – ten years ago the CPI was double what it is now – but it is increasing at an alarming rate.
âBut the annual pace of the CPI in June was six times higher than in February, and on a monthly basis, prices are now rising five times faster than they did then in 2020.
“It is true, the acceleration seems particularly spectacular compared to the stagnation of prices observed during the most severe lockdowns.
âAn interest rate hike is not yet imminent, but it is gradually becoming a less and less distant prospect – and that is giving the pound a boost. After a sluggish start to the week, the pound sterling is back in the spotlight. “