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Inflation is no 'mythical bogeyman', advisers warn

Inflation is no 'mythical bogeyman', advisers warn

A generation of clients who have never experienced high levels of inflation are likely to come in for a "short, sharp, shock", advisers have warned.

Financial planners urged Britons not to be complacent about the latest inflation report from the Office for National Statistics, showing the ever-rising levels of inflation in the UK are having a detrimental effect on people's ability to save.

Rob Peters, director of Altrincham-based Simple Fast Mortgage, said: "For many, inflation has been this mythical bogeyman your parents talked about but never comes.

"This year, 2022, is going to be a short, sharp shock to the system for a lot of the public, particularly those whose finances were already stretched close to breaking point. For a lot of households, savings will be put to one side."

With the latest consumer prices index data showing inflation rising 5.4 per cent in December from 5.1 per cent in November - the highest rate in 30 years - 66 per cent of Brits surveyed by the ONS said their cost of living had increased at the end of 2021. 

For 46 per cent of these, their ability to save in 2022 will be seriously curtailed as a result.

Daniel Wiltshire at Bradford-on-Avon-based Wiltshire Wealth, commented: "These statistics are highly concerning although not exactly surprising.

"This year households are set to face a triple whammy of inflation, increasing interest rates and tax rises. People's finances are being stretched like never before."

Similarly, Joshua Gerstler, chartered financial planner at Borehamwood-based The Orchard Practice, said: "You can see the impact of inflation playing out before your eyes. At the lower end of the income scale, it is extremely hard to save money when you need every last penny just to get by.

"As you move up the income scale, and you meet your basic expenditure needs, it is then a case of getting into good habits to ensure you save every month."

However, while advisers said it was important not to be complacent about the effects of rising inflation (and the potential for higher bank base rate rises), they also urged people to keep saving, even if it was not as high an amount as they would have hoped, and to do so as tax-efficiently as possible.

Roger Jackson, director of financial planning at Kendal-based IFA firm Financial Management Bureau, said: "In the current extreme inflationary environment, rather than chasing small returns on short-term savings, it might be more fruitful to make sure you have the right investments with competitive charges and an optimised tax strategy.

"This can save thousands of pounds, not just a few pounds."

And other planners believe the government needs to do more to help people.

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, said: "Vast swathes of the public are feeling the pinch and their savings pots are being sacrificed as a result. We need radical action and reform to fix things.