UK inflation sees record rise in August and reaches alpine heights

ended 14. September 2021

Inflation just got positively alpine

It was expected to be high, but not this high. The UK inflation rate rose to 3.2% in the 12 months to August, the biggest increase since records began in '97. The cost of living is bordering on the alpine.

So what do savers do? Rates have been at record lows since the Global Financial Crisis in 2008, but this latest rise in inflation has hit them like a sledgehammer.

IFAs offer their views

We asked the Newspage community of IFAs for their views on what savers should do to get on top of inflation.

The consensus, quite clearly, is that people need to accept that a degree of risk is inevitable if you want to keep returns real in the current climate.

Select responses below.

4 responses from the Newspage community

Star Quote
"This record rise in inflation is a hammer blow to savers. If you want to avoid your money being eroded by inflation, you’ll need to give up the certainty of cash deposits in favour of the ups and downs of investing. Of course, investment isn’t without its own risks and you should speak to an independent financial adviser who will be able to recommend the most appropriate portfolio for you."
Star Quote
"We struggled to think of any cash accounts that currently offer anywhere near 2.5% interest rates. The best interest on current accounts could be 2% with Nationwide (up to £1500) and 2.02% with Virgin Money (up to £1000) but both are low investment amounts and have certain requirements, so not very helpful for big savers. If you do find a better rate, then double check that it is covered by the Financial Services Compensation Scheme so that your money is protected. As a rule, we recommend our clients keep 3-6 months' outgoings in cash so it’s very important to make sure the money you do have invested works hard for you. Rather than chasing small returns on short-term savings, it might be more fruitful to make sure you have the right investments with competitive charges and an optimised tax strategy. This can save thousands of pounds, not just a few pounds."
"Inflation is the biggest threat to your long-term financial security. Over the past 30 years, for example, inflation in the UK has resulted in an item costing £1 in 1991 now costing £1.84 in 2021. Your purchasing power has effectively almost halved. In short, looking for the best savings rate to earn an extra £3 a year is not the answer. The answer is a well diversified portfolio of global equities. Over the long term, equities have always provided better returns than cash and inflation."
"When the Bank of England rate, or 'risk-free' rate as it's known, is 0.10%, then that means if you want risk-free returns, you will need to accept this rate. Any return above this rate, by definition, will involve some sort of risk. We help our clients understand this which then drives to the reason why the client wants to hold the cash in the first place. If it is for emergencies and other contingencies, which is a great idea, then it shouldn't matter on the return as that is not the point of holding it. If the cash is held investment purposes, then perhaps cash is not suitable and they should look at other vehicles. It all comes back to understanding the why."