FTSE 100 lower as UK inflation soars to ten year high

by | Dec 15, 2021

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Today, the Office for National Statistics (ONS) has released the latest inflation data for the UK revealing that the Consumer Prices Index (CPI) rose by 5.1% in the 12 months to November 2021, up from 4.2% to October. This is the highest CPI 12-month inflation rate since September 2011, when it stood at 5.2%.

According to the ONS, in November 2021 the CPI rose by 0.7% from the previous month, compared with a fall of 0.1% in the same month the previous year. Price rises in transport, and recreation and culture were the largest contributors to the monthly rate in November 2021. The costs of goods produced by factories and the prices of raw materials were also a factor.

Economists polled by Reuters had been anticipating a rise of 4.7% for November so today’s figure of 5.1% has beaten that considerably. The Bank of England, whose Monetary Policy Committee(MPC) meets tomorrow for its monthly meeting to decide on the level of UK interest rates, had projected that inflation would hit 5% in the spring of 2022. Last month, the MPC voted to keep interest rates on hold at 0.1% by voting 7-2.

What will the MPC do tomorrow? They’ve certainly got a difficult decision on their hands.  Any decision to raise rates is likely to have a big impact on consumers who are already feeling the strain on household budgets through rising living costs, especially if mortgage costs then rise into the mix. With the Omicron variant being reportedly rising sharply in the UK, this adds to the uncertainty facing the BoE’s committee tomorrow.

 
 

The FTSE 100 index had a muted response, opening 0.1% lower this morning as analysts consider all the uncertainty including the latest on the Government’s ‘plan B’ response to the rising Covid numbers.

IFAs and financial experts comment on the impact for savers and investors

Adam Walkom, Co-founder at London-based Permanent Wealth Partners: “The current extreme level of inflation, which is now at a decade high, is the biggest issue we’ve faced with our clients since 2008 in terms of their investment strategies. This is a far bigger issue than the Covid-related sell-off of March 2020, which was definitely scary at the time but was always going to be temporary.”

Graeme Inglis, chartered financial planner at Scotland-based Poise Financial Planning: “We are speaking daily with our clients about the impact of inflation, which is now soaring. We illustrate the real return, after inflation, of their investments. This is particularly important to illustrate when inflation is riding high. It is not appropriate for clients to increase risk in order to get real returns, as with a sensible investment strategy they will ride the inflation curve in any case. We are seeing clients who would not have considered investing money opting to invest due to the combination of decade-high inflation and lower than usual bank rates.”

 
 

Joshua Gerstler, chartered financial planner at Borehamwood-based The Orchard Practice: “Inflation is the single biggest threat to people’s wealth over the long term. We always make sure to factor the increase in the cost of living in our projections with the families that we look after. This helps illustrate how important it is that your life savings grow faster than the rate of inflation. Some who have previously seen bank accounts as a safe haven now realise that this is in fact one of the worst places to leave your wealth, and that a well-diversified investment portfolio is the way forward.”

Scott Gallacher, a Chartered Financial Planner at Leicestershire-based independent financial advisers, Rowley Turton: “If you want to avoid your money being eroded by inflation, especially this level of inflation, you’ll need to give up the certainty of cash deposits in favour of the ups and downs of investing. ”

Roger Jackson, director of financial planning at Kendal-based IFA firm, Financial Management Bureau: “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.”

 
 

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