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Inflation has been above the 2% target (set by the Bank of England as the rate which helps to support the Government’s economic objectives, including those for growth and employment) continuously for 18 months. The current rate of 2.5% announced yesterday is likely to impact on those who are trying to build up their savings, or those living off them.

Savers earning 1% interest on their assets are falling behind in terms of the ever-increasing cost of living. This is obviously worse for those who are receiving less than 1% per annum.

There are cash saving accounts available on the market which pay above 1% so it is always worth looking around different providers to make sure your money is doing the best that it can. The recent Bank of England base rate increase to 0.75% per annum should start to benefit savers too.

The above target inflation also affects those who use their savings instead of an income, to pay for living expenses. As goods are getting more expensive each year, a higher amount of income is required to keep up with these rising costs. Unless this has been built into your financial plan, you may find that your spending power could reduce faster than expected.

Bear in mind when creating a plan that allowing for 2% per annum for inflation may not truly represent the actual cost which over the past 20 years has been above 2.7% on average.

Any financial plans should be reviewed regularly to ensure that inflation is taken into consideration and doesn’t erode the chance to achieve your financial goals.

The information in this guide was correct as at 17th August 2018. This article does not constitute as personal advice and guidance should be sought to ensure that any investment meets your individual circumstances including risk tolerance and capacity for loss. The value of investments can fall as well as rise and you may get back less than you pay in. Past performance is not a reliable guide to future performance.

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This post was written by Anthony Long