By Marc Stemmer, Founder and Director
As a professional in the wealth management sector, the recent news regarding the inflation rate dropping to 4.6 per cent, its lowest in two years, certainly caught my attention.
This significant decrease from the 6.7 per cent rate in September and the peak of 11.1 per cent in October 2022, primarily due to lower energy prices, is a noteworthy development. However, it’s essential to delve deeper into what this means for savers and investors.
Benefit for consumers
Firstly, let’s consider the immediate benefits. A slower rate of inflation means that the cost of living is no longer increasing as rapidly.
For individuals, this translates to more disposable income and enhanced spending power. Existing savings and earnings now have greater value in real terms, allowing for increased consumer spending or additional investment in personal savings.
Potential challenges for future savings
On the flip side, this scenario presents a potential challenge to those looking to build wealth.
The Bank of England (BoE), in response to slowing inflation, may opt to lower their base rate. Historically, this often leads to banks reducing their own savings rates in response.
This could mean that the return on investment for saving accounts in the future may be less than what you can achieve today.
It’s a delicate balance – while current savings have more purchasing power, the ability to grow these savings through interest could diminish.
Monetary policy considerations
Looking ahead to the Monetary Policy Committee’s meeting on 14 December, it’s currently looking unlikely that the base interest rate will be reduced, as inflation is decelerating at the Government’s targeted rate and the Bank is yet to reach its own target of tow per cent.
This is a critical point for investors and savers to consider. The current interest rate environment, with rates at a 15-year high of 5.25 per cent, is beneficial for savers in terms of higher returns.
However, this also means increased costs for borrowers, including those with mortgages – although there is already some indication that borrowing is getting cheaper as lenders react to the current situation.
Long-term perspective
It’s important to remember that the cost-of-living crisis is not over. Energy and food prices remain significantly higher than they were two years ago, and households at all income levels continue to feel the pressure.
For investors and savers, this means adopting a long-term perspective, focusing on diversified strategies that can weather both the highs and lows of market fluctuations and inflation rates.
In need of investment advice? Contact us today
In light of these developments, businesses and individuals should consider reassessing their savings and investment strategies. We are here to provide expert guidance and tailored solutions for your savings and investment needs.
If you require assistance in light of the recent inflation news, please contact us today.
