Tips To Tackle Rising Inflation

26th March 2022

Inflation hit 5.5 per cent in January, the highest rate seen in the UK for 30 years – but worse may be yet to come. The Bank of England has predicted inflation could reach 7 per cent in the spring, and that forecast was made before the crisis in Ukraine pushed energy prices even higher.

Many Britons are going to be significantly worse off as prices rises, and some face real financial hardship. But financial advisers say there are some steps you can take to protect yourself.

First, the government-backed MoneyHelper website advises people to make use of budget planner services, such as its free spreadsheet.

The idea is to record all of your spending so that you can see exactly where your money is going each month – and begin to identify areas where you might be able to cut back.

Next, think about how you manage your personal finances. For example, if you have borrowing needs – either new borrowing or rearranging existing facilities, think about sorting them out now. The Bank of England is expected to raise interest rates in the coming months, so the cost of loans, including mortgages, is likely to increase.

“My advice to most people is to fix your mortgage rate for as long as possible – five years is a good option,” says Scott Gallacher, a director of Leicester-based independent financial adviser Rowley Turton. “The risk of missing out on a small saving if rates come back down is substantially lower than the risk of being unable to pay your mortgage if rates climb considerably higher.”

Gallacher also urges people to think about their savings and investments in the context of rising inflation. Cash savings will fall in value in real terms, he warns, because while banks and building societies may follow the Bank of England’s base rate rises, the interest offered won’t come close to matching the inflation rates now predicted.

For those able to tie up their money for the longer term – say five years or more – it makes sense to focus on investments that have the potential to deliver larger returns, albeit with the possibility of down periods as well as ups.

“Avoid knee-jerk reactions, but if your investments are currently very cautious, you may need a more balanced portfolio,” Gallacher suggests. That could include funds that invest in the stock market – particularly in companies delivering good income – as well as classic inflation-proofing assets such as gold. Take financial advice if you’re not sure how to proceed, given your circumstances and appetite for risk.

Finally, if you do have spare cash and you’re planning a big-ticket purchase in the months ahead – something for the home, or a new car, say – think carefully. Do you really have a sufficiently large buffer to go ahead, given the likely rise in the cost of living? And if you’re sure the answer is yes, it may be sensible to make the purchase sooner rather than later, with prices rising across the economy.

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