Investment Insights

Inflation is back. After two years when consumer prices in the UK barely rose, the annual rate of inflation has shot above the Bank of England’s target of 2% in 2017.

The Bank forecasts that consumer price inflation will remain above 2% in each year until 2021. While nowhere close to historic highs, higher inflation stands in contrast to near record low interest rates offered on cash savings.

To protect your purchasing power over time, your savings need to grow at least as quickly as prices are rising. Here are four ways that you could navigate the challenge posed by rising inflation, and help protect the value of your savings from its corrosive effects.

Think of Beijing and images of the Chinese capital shrouded in smog might come to mind.

Money is only ever really worth what you can buy with it.

Over time, rising prices erode the value of cash. Compare, if you will, how far £10 could stretch when you were younger to what it will buy today. It’s not just the price of goods that has risen over the past decades, but also assets like property.

Please refer to the glossary for an explanation of the investment terms used throughout this article.

Making sure you have enough income to support your needs and aspirations in retirement is never straight forward. For many, the challenge has become more acute with the squeeze on many traditional income streams.

In this edition of Smart Money, Ritu Vohora and Ana Cuddeford discuss how investing through your ISA can play a valuable role in long-term saving, and why you shouldn’t let choppy markets derail your plans.

When we save or invest money, a common goal is for it to grow faster than prices are rising, or at least as quickly. This is because we know that inflation erodes the value of cash – in other words, reducing what can be bought with a £1 coin or £20 note over time.