Manage rising inflation through your personal finances

As prices continue to rise this year, inflation has become more and more of a priority for many people in the UK. With the Bank of England (BoE) expecting it to hit 6-7% by the spring, something not seen for 30 years, there is understandable concern around the cost of living.

While the progressive increase in the price of goods and services over time is an integral part of any economy, it is the speed of that increase that keeps the members of the Monetary Policy Committee of the BoE awake. UK inflation is currently 5.4% for the 12 months to December, more than double the bank’s target of 2%. This is due in part to Covid-related supply chain disruptions and sharp increases in energy and fuel prices.

To try to reduce this, the BoE raises interest rates to make saving more attractive and borrowing more expensive, so people spend less, demand falls, and in theory we see downward pressure on prices.

To that end, in December 2021, the BoE raised rates from 0.1% to 0.25% and has since raised them back to 0.5%.

However, despite these expected increases, a large gap remains between interest rates and inflation. And with inflation pressures expected to ease in the latter part of the year, as energy prices stabilize and supply chains return to normal, the difference between what your money can earn in interest and that you can pay with it could become a real problem.

High net worth individuals often feel this more keenly than most because high-end goods and assets, from handbags to houses, can rise in price many times above the level of inflation.

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