UK inflation rising for the first time since December 2023 shouldn’t be a surprise but is a clear sign investors need to stay on their toes, financial services experts say.
The latest Consumer Prices Index, published by the Office for National Statistics (ONS) shows the rate of inflation rose to 2.2 percent in the 12 months to July.
The 0.2% rise is largely being attributed to gas and electricity prices falling by less than they did last year.
Inflation temporarily fell to the Bank of England’s two percent target in June 2024, prompting it to cut interest rates for the first time in four years, from 5.25% to 5%.
Services inflation remains elevated at 5.2%, while core CPI stands at 3.3%.
Inflation is still seen as the most significant risk to the performance of UK investors’ portfolios, new research from RAW Capital Partners has found.
Jonny Black, chief commercial & strategy officer at Abrdn adviser, said today’s news is “a clear sign that savers and investors need to stay on their toes”.
“While future inflation trends look positive, there’s always the risk of resurgence – these are still volatile global economic conditions, and factors like sudden supply chain shocks could send prices upwards, faster, once more.
“It remains critical that savers and investors plan for a range of scenarios and consider how they can mitigate inflation’s effects on their strategies. Advisers will have an important role to play here.”
Lily Megson, policy director at My Pension Expert, said: “A small uptick in inflation certainly isn’t great news after the long journey back to target levels, but it isn’t devastating either.
“Critically, it should serve as a reminder that we are not yet out of the woods. Until inflation stabilises, things will be challenging for Britain’s retirees and those planning their retirement – particularly following years of their savings facing a walloping from high inflation.”
CEO and Founder of Unbiased, Karen Barrett, said the rise in inflation “is disappointing but it shouldn’t be a shock”.
“Inflation rising also means savings and annuity rates are likely to stay higher for longer – although there could be reductions this year, so lock one in before rates fall.
“Speaking with a qualified financial adviser can help you to plan ahead and reach your money goals.”
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: “It has indeed been a Cruel Summer for the Bank, as service price inflation refuses to budge from its 5% perch.
“Driven by air fares, package holidays, and hotel prices, so-called ‘Swiftonomics’ has contributed to the first headline increase to inflation this year, buoyed by a strong jobs market and steady wage growth.”
He said this casts a shadow of doubt over further rate cuts in the coming months.
Research published by Charles Stanley recently revealed just under half (48%) of do-it-yourself (DIY) investors believe inflation would rise again over the next six months.
“Britain’s cohort of DIY investors were divided last month on the direction of travel for UK inflation, but most saw this increase coming,” said Morgan.
“Many will have made decisions accordingly, both within their investment portfolio and their household budgets.
“This could include increasing their exposure to equities to ensure their investments outpace cash returns, ensuring they’re on the best mortgage rates, and hunting down the best cash savings rates.
“As ever though, it’s time in the market, not timing the market – a diversified long-term portfolio will best protect against economic ups and downs.”
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