Inflation and the resulting cost-of-living crisis have put consumers in a chokehold for the last two years. Reaching a 41-year high of 11.1% in October 2022, the rapid growth of household bills and everyday essentials has rendered financial planning an increasingly complex task.
British consumers would undoubtedly have been pleased to hear that the inflation rate dropped from 3.2% to 2.3% between March and April, and again to the target rate of 2% in May.
However, prices are still rising. So, while the gradual fall in inflation throughout the opening half of 2024 may point towards an economy on the mend, the lingering effects of inflation will likely be felt for some time.
Until we finally reach a period of economic stability for each of us as individuals, not just the markets, consumers must consider how to overcome inflation as part of their financial planning.
The lingering effects of inflation
The cost-of-living crisis has subjected billpayers to the poorest standard of living for many years and it is not over yet. Food prices have leapt by 32% since July 2021, with energy prices growing by over double that (67%) in the same period. The thought that people will feel the benefit of the Office for National Statistics’ (ONS’) latest inflation announcement is optimistic, to say the least.
Wellness and wellbeing holidays: Travel insurance is essential for your peace of mind
Out of the pandemic lockdowns, there’s a greater emphasis on wellbeing and wellness, with
Sponsored by Post Office
In fact, a recent poll by the Trade Union Congress (TUC) revealed that 58% of people think their living standards either stayed the same or got worse, with only 14% saying they had improved.
With inflation continuing downward, many people, particularly those with mortgages and debt repayments, may be confident that the high cost of borrowing is set to fall.
However, wages have grown by 6% in the first four months of 2024, which could increase individual spending power and may prompt businesses to raise prices again, resulting in another upsurge in inflation.
Any decision to cut the base rate, which would increase consumers’ borrowing power, will be hinging on inflation remaining under control. As such, any price increases could curtail hopes of cuts to the interest rate.
The persistent uncertainty around how inflation will track in the next few months will continue to affect individuals’ financial decisions.
Savers need to take control of their savings
A cautious approach from the Bank of England towards inflation has provided a silver lining for savers, with the high-interest, lower-inflation environment allowing savers the opportunity to recover some of their losses – but only if they are proactive.
There are now hundreds of savings deals that outstrip inflation. Go back to November 2023, and savers were faced with not one offering that could say the same.
However, consumers are responsible for ensuring that they reap the rewards of having a well-thought-out and agile savings plan. Too many are missing out on the best savings deals simply because they are not willing to leave the more traditional high street banks in favour of competitors who may offer better rates.
By sticking with their tried-and-tested banks, some are stuck with interest rates as low as 2%. Savings accounts that offer 4% or under are unlikely to help you build your finances in our current inflationary environment.
This ‘perfect storm’ of low inflation and high interest rates will be limited, and if you want to benefit, you must act now.
Maximising gains in a shifting market
In the short term, the outlook for savers is bright, and the chance to finally make some real gains in the market is apparent.
The drop in inflation has eased some of the financial pressures many families face, and inflation-beating savings offers are plentiful.
However, people can be proactive and shop around for the best savings offer that suits their situation and plans and be more willing to look outside of the traditional lenders.
Andy Mielczarek is CEO of Chetwood Financial
