Alexandra Loydon, Director of Partner Engagement and Consultancy, St. James’s Place:
“Today’s figures showing inflation has hit a 30-year high are a financial blow for millions of households across the UK, who will feel further pressure on their finances, as prices soar and wages stagnate. According to SJP’s Financial Health Index, we know that more than half of UK consumers already feel that their financial position has a negative impact on their overall quality of life, and so the next few months could be a real struggle. Worryingly, our report found three in ten people also feel financially vulnerable, and with other concerns such as rising energy bills, this is now a precarious situation. Clearly there are many factors that impact financial wellbeing, and some will be outside our individual control, and this includes the overall cost of living increasing.”
Ed Rimmer, CEO of Bath-based SME finance provider, Time Finance:
“Rising inflation is hugely concerning for business owners and presents another formidable obstacle for them to overcome following two years of reduced operations due to Covid, staff shortages and supply chain issues. Throw Brexit into the mix and this really does become a vicious cycle for many. Materials shortages and rising costs can mean reduced business levels, which impacts income and provides less headroom for growth and recovery. The SMEs we serve are incredibly resilient and the classic British “keep calm and carry on” attitude is fortunately prevailing, for now at least.”
Derrick Dunne, CEO of YOU Asset Management:
“Another month, another milestone for UK inflation. Striking though it may be, and sharper than expected, this latest rise is entirely in keeping with the ongoing cost of living crisis and the soaring price of energy in particular, with a major upward contribution to the annual rate coming from transport (1.29%) in December.
“Even so, today’s data is a stark reminder of the challenges facing the Bank of England. With supply chains still in crisis and economists warning that inflation may not peak until the Spring, multiple interest rate rises may be necessary in the year ahead.
“The Bank’s MPC will next meet on February 3rd to decide the base rate, but it’s clear that investors will still have to content with a harsh inflationary environment for the foreseeable future.”
Becky O’Connor, Head of Pensions and Savings, interactive investor is particularly worried about the impact on pensioners, commenting:
“A large proportion of low income households are pensioners. Age UK has estimated there are more than two million pensioners living in poverty in the UK. Those receiving the state pension will receive a 3.1% uplift in April, which is dwarfed by the current level of inflation. The imbalance between state pension rises and inflation rates, which are likely to rise further by April, will provoke further calls for the Government to consider a more generous uprating that properly reflects the difficulty many older people now face.
“Inflation also further erodes the value of cash savings, which come with very low interest rates and which again, are often favoured by older generations who are withdrawing from their pensions.”
Simon Taylor, Partner at Barnett Waddingham comments on why the inflation print has an impact on UK pension schemes and is important for scheme managers to monitor saying: “Usually, an increase in inflation is expected to worsen the funding position of DB pension schemes because this increases the cost of providing inflation-linked pension increases. However, despite inflation climbing in December, funding positions actually improved due to a fall in long-term inflation expectations. This put the average FTSE350 DB pension scheme on track to buyout in a decade – a 15-month improvement on November.
“This swing is a welcome reminder for those managing DB schemes to be astute in their reading of financial markets – there is a lot of noise around short-term high inflation and imminent base rate rises, but long-term inflation expectations moved in the opposite direction in December.”
