Today the Governor of the Bank of England, Mark Carney said that if the economy evolves broadly as expected, interest rates will likely rise “somewhat sooner, and to a somewhat greater extent” than forecast in November.
"With the world economy strengthening and UK growth just above our economy's speed limit, we expect to reduce some of the support we are providing to the economy in order to bring inflation back to its 2% target," Carney said, following the report.
And there’s that word again: inflation.
Worries about inflation have triggered real shifts in the market this week and stirred up some pretty dramatic news headlines along the way, but what is it and how is it impacting your money?
What is inflation?
Simply put, inflation is a measure of the rising costs of goods and services but it’s also known as the ‘Secret Assassin’ because it can sneak up on you and take a slice out of your savings.
If, for example, you have £10,000 in a savings account with no interest, in one year’s time it will only be able to buy goods worth £9,700 if inflation remains at 3%. You might think you’re following your parents’ words of wisdom and putting your money in a safe place but as time goes on and prices rise, your pockets are being squeezed.
How can you beat inflation?
Once you’ve accepted that inflation is a fact of life and the days of buying penny sweets are long gone, then the next step is to figure out how to beat it.
Stocks and shares typically have a better chance of keeping up with rising inflation, as a share is just a portion of a company’s profit and as their prices increase, companies are likely to pass on additional profits to their shareholders.
But investing brings it’s own risks and challenges. The prices of shares can rise and fall and even safer assets such as bonds can lose value as inflation accelerates, making them harder to sell. This is because when you buy a bond, you’re essentially just lending money to a company or the government, so you’re locked in for the long-term at a rate that may not keep up with inflation.
Your best option is to spread the risk of your assets.
Is inflation increasing?
Inflation is currently at a twelve year high of 3%. After the Brexit vote, the pound dropped in value and it suddenly got a lot more expensive to import goods, so companies bumped up their prices.
Mark Carney, Governor of The Bank of England tried to control this by raising interest rates last year and making it more expensive to borrow money. In today’s report he suggested that inflation could increase above 3% and therefore we are expecting at least three more interest rate rises over the next three years with the next rise coming as soon as May.
How do you protect your money from inflation?
Here at Click & Invest the team of active investment managers will be watching the Bank of England closely to see how it responds to multiple factors including interest rates and inflation levels.
We have a diverse selection of investment portfolios that spread your investments across stocks, shares, bonds, property and cash. Our team of experts don’t just track the markets but will actively try to beat it and respond immediately to any increases in inflation.
To find out more about how we invest your money click here.
All investment carries risk and it is important you fully understand these risks and are willing to accept them. You may get back less than you invested. The information contained in this article does not constitute advice and the information referred to may not be the same for all, therefore we strongly recommend you seek professional guidance from your independent advisor before taking any action.
Sign up and join the 1000s of people who get our latest insights, articles, opinions & marketing updates