How Does Inflation Affect your Investments?


The UK’s consumer price index (CPI) breached the Bank of England’s target for the first time this year rising to 2.1% in April, up from 1.9% last month. This is the first time inflation has exceeded the 2% level since December. This is largely due to higher energy prices including electricity and gas, which jumped 10.5% and 14.1% respectively.

Many analysts have predicted that above target inflation is here to stay, although in view of the Brexit fiasco, this is unlikely to influence the direction of interest rates. So what does this mean for investors?

Those who rely on bank accounts as their only form of investment will need to find accounts which provide an interest rate of 2.1% or more to ensure their money keeps pace with inflation. With current interest rates being so low, this is difficult unless you are prepared to lock your money away for a set period. For example, there are some accounts providing an interest rate of 2% for a one year fixed rate bond and if you are prepared to lock your money away for a period of five years, the interest rates are generally between 1.7% – 2.6% per annum. Not particularly attractive especially in view of current inflation. Although bank accounts are considered secure, if your money does not keep pace with inflation, it will be worth less in the future.

Although stock market linked investments are not suitable for everyone they do provide the potential to outperform deposit accounts and inflation. At Philip J Milton & Company Plc we spread clients’ investments over a wide range of funds and each investment typically holds as many as fifty individual securities to reduce the risk of a single company underperforming.

If you are concerned that your money is not keeping pace with inflation, please contact the office and speak to one of our highly qualified Advisers who can assist you with your investment goals.

Risk Warning

Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.