Savings fears as second Bank of England official warns of 4% inflation rise

Savings could well be impacted by an inflation rise, with interest rates likely to be affected. This will create concern for Britons who are determined to grow their money while keeping it safe. Yesterday, it was announced inflation rose to 2.5 percent in the 12 months to June, however, this may not be the end of the matter.

Recently, the Bank of England predicted inflation would peak at approximately three percent in the coming months.

However, a second official from the central bank has seemingly rejected this idea, instead suggesting a staggering four percent rise could be on the cards.

Sir Dave Ramsden, deputy governor of the Bank of England, stated it was likely the rate could increase to this amount.

In a speech, he said: “I wouldn’t be surprised to see the whole inflation rate potentially rising as high as four percent for a period later this year.”

Inflation is one of the main factors which are considered by the Bank of England when it sets its base rate.

This is because it can influence the amount of interest a bank pays a person on their savings, as well as the interest charged for borrowers.

As a result, eagle-eyed savers should be keeping an eye on inflation as it could impact their savings in future.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “You can beat inflation with only the smallest amount of effort at the moment. The trouble is that when rates are this low, we can’t be bothered to put even a tiny iota of effort into switching accounts.

“Low rates aren’t an excuse not to switch – they’re the reason why we need to do so.

“And given that rates are on their way down, they’re why we need to do it as soon as possible too.”

Although savings rates have improved recently, the idea of rising inflation is likely to put a dampener on what may otherwise be good news.

Rachel Springall, Finance Expert at Moneyfacts, offered further insight into the matter.

background pattern: inflation increase

                                   © Getty inflation increase

She said: “Inflation is raining havoc on savers’ cash.

“There is currently not one standard savings account that can outpace its eroding power and, according to the Bank of England, it is expected to pick up further above the target of two percent.

“Consumers with a fixed bond or ISA that is about to mature may wish to compare deals now, particularly on one-year fixed bonds.”

Across time, increasing inflation can reduce the value of a person’s savings.

This is because prices go up, meaning the money will not be able to “buy” a person as much in the future.

Inflation can eat into a person’s purchasing power, therefore leaving them with “less” overall.

Janet Mui, investment director at wealth manager Brewin Dolphin, also provided insight and said; “Coming out from a once-in-a-generation pandemic with so much disruption in supply, billions of saved cash and pent-up demand, it is not impossible for inflation to reach four percent.

“That’s especially true with a summer of sports and heatwave that is likely to drive hospitality and clothing demand. US inflation has been shocking expectations in the past couple of months so it can serve as a reference.

“The key question is whether we are still going to be stuck in this high inflationary environment in the next six to 12 months – our base case is no, as we believe supply bottleneck will adjust overtime and demand will meet in the middle.

“Ultimately the labour market remains the key to long-term inflation trends and we believe there remains lots of slack there.”


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