It's £1,000 each period of time. What was the subject? Inflation update 2017

15 February 2017

In May 2016, we published a Blog with the above heading, which was very relevant at the time. The following month, with the Brexit result, and then the election of President Trump, the important and clearly rising issue of inflation seems to have been drowned out until now. With the Consumer Prices Index (CPI) increasing to 1.8% from 1.6% in December 2016, and with what appears to be a strong trend upwards (fourth rise in a row), this is an issue that we and The Bank of England should be paying close attention to.

I have returned to this blog and updated it below:

We were living in a low inflation economy, which has some benefits, but also causes some problems along the way. You only need to speak to deposit savers who have seen interest returns reduce to minimums to know more on this. The Bank of England seems to be under no pressure to raise base rates (although with their target inflation rate of 2.00%, this pressure is now increasing), and the economic data that is currently available keeps their monthly rate decision further away….for now anyway! There is no guarantee that rates will not move, but it is not looking as though 2017 will see any significant variances. After the EU referendum result of 2016 we saw sterling fall significantly, partly shielded for those with investments seeing a rise in many equity values.

It is also interesting to note that in many personal experiences of our clients, the inflation rate applied to long term care costs, about £1,000+ per week, and private school fees, about £1,000 per month (£3,000 per term) can be higher. Those who have to bear the costs for both the older and the younger generations can find the burden significant. £1,000 per month might simply be your target income in retirement from your private plans, when adding on the State Pension.

If inflation returned to past rates (7.21% pa in 1991, 17.24% pa in 1979, 24.89% pa in 1975 / inflation rate based on the Consumer Price Index: the costs above could increase at eye-watering levels. Bank base rates would then probably be used to control consumer spending (as the preferred economic tool of choice in the past) and this would see the current low mortgage borrowing costs disappear. This is something many new homeowners have no knowledge or understanding of.

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Why are the points above important? Because when you add on the usual economic burdens of family costs or saving for retirement, making the most of your money through good financial planning holds great value. Even if you have achieved this in the past, regularly reviewing your plans and objectives is important.

If you would like to know more, then please contact the team at Chapters Financial at our Guildford office to help plan your needs now, and into the future. 2017 is changing fast so when the cost of £1,000 per period comes up you should be ready.

No individual advice is provided during the course of this Blog.

Keith Churchouse

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