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Growing fears that inflation could impact wallets

Growing fears that inflation could impact wallets

Category: Money

Updated: 01/12/2016
First Published: 01/12/2016

We've all heard reports that the cost of food and petrol could increase in the next few months, together with the threat of rising inflation, and it seems that these concerns are beginning to take their toll on the nation's consumers.

The latest Disposable Income Index from Scottish Friendly shows that over half (55%) of households are worried about an increase in the cost of food, while 45% are anxious about petrol prices. Disposable income was found to remain relatively flat, with the average household left with £990 each month after paying for essentials such as housing, groceries and bills – but if price rises come to fruition, that disposable income could soon be eroded.

Inflation is a particular concern for many, with mixed forecasts over the UK economy and the value of the pound no doubt heightening concerns. Indeed, 46% of respondents admitted they're apprehensive about what impact the vote to leave will have on their finances, while 25% are worried that leaving the EU could impact their job, a figure which rises to 44% of 18-24 year-olds and 49% of 25-34 year-olds.

Only 19% of households feel they have more cash left over at the end of the month than they did 12 months ago, and only 35% believe they'll be better off in 12 months' time. This figure has fallen since the beginning of the year, too, when 41% thought they'd be better off. Exactly half of all households (50%) said they regularly save or invest each month, a slight dip from the last survey when 52% said the same.

Perhaps as a result of that – and the largely pessimistic attitude overall – 50% of respondents said they're worried about how they would deal with a big, unexpected bill, with a lack of savings and excess cash leaving them open to financial shocks.

This could be an even bigger concern for the younger generation, with 24% of those aged 18-24 and 16% of 25-34 year-olds saying they already spend more than their income on essentials, compared with just 9% of over-55s, which means the prospect of rising prices could be even more distressing.

"The results of our latest survey show the country is genuinely worried about the impact inflation is going to have on their day-to-day lives," said Calum Bennie, savings expert at Scottish Friendly. "This has come at an awkward time, too, as disposable income has remained relatively flat while prices have begun to rise in real terms in the run up to Christmas."

It's clear that many are worried about the pound in their pocket not stretching as far as it used to. Not only that, but when it comes to savings, we're sitting on an "inflation timebomb", according to Calum. "With the fall in the value of the pound and repeated warnings inflation will spike, many of us are continuing to stash our cash in high street savings accounts that may be offering interest rates well below the current rate of inflation.

"Indeed, those persisting with derisory rates of interest are simply losing money, and will be unable to react to price rises until it is too late. People may have taken the era of 'noflation' for granted and now is the time to get their finances in order and be prepared."

So what can you do? The key is to be prepared and to start shoring up your finances against the potential ravages of inflation. One of the first things to do is look for a savings account that pays inflation-beating rates – i.e. above 0.90% – and build up a financial buffer that can weather any unexpected financial shocks. The latter means that you'll need to seek an easy access savings account, but don't overlook fixed rate deals for better returns that are truly inflation-beating.

Try to save as much of your disposable income as you can to build a decent financial buffer, and that way, inflation hopefully won't have too much of an impact on your wallet.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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