Inflation and interest rates: How it could affect your spending this Christmas

After the low-key Christmas that most of us had last year, many will be looking to reunite with loved ones and celebrate in style this December. But with rising energy prices, Brexit shortages, and pandemic chaos helping to hike up consumer prices, Christmas may be an expensive one.

 

The Office for National Statistics reports that UK inflation had surged from 3.1% to 4.2% in the 12 months to October.

 

This is the fastest rate increase in almost a decade, and with so many shoppers rushing to the high street in the lead up to Christmas, it seems inflation may continue to grow. According to a survey by the CBI, retailers experienced a dramatic increase in sales last month, while the UK saw its biggest Black Friday ever. Some estimates predict £9.2bn was spent over the weekend. So should we be worried?

Are interest rate rises ahead?

Those in-the-know predict the Bank of England may soon increase interest rates in an attempt to reduce the impact of inflation.

 

But if the last couple of years have taught us anything, it’s that nothing is certain and even the experts can get things wrong! 

 

Many expected the Bank of England to increase rates back in November, but it postponed making any changes due to concerns over how it may affect unemployment. 

 

And then we have the sceptics and the naysayers! Not all economists believe an interest rate rise is necessary. How much difference will it actually make? Could it be that the rise in inflation is temporary? 

 

After all, the pandemic has had us doing a lockdown hokey-cokey for almost two years now. We’ve not long stuck our legs out the front door before we’re told to put them back in again!

This has made it hard for businesses to stay open, consumers to spend, and prices to maintain some stability. 

 

The UK isn’t the only place to be affected by rising inflation. In November, the US recorded an annual inflation rate of 6.2%, its highest level in 31 years. Parts of Europe are experiencing similar spikes too, though it’s unclear which nations will be brave enough to increase the cost of borrowing. 

 

So, what does all this uncertainty mean for you this Christmas and in 2022?

Borrowing could become more expensive

If interest rates rise, this could spell bad news for borrowers.

 

Whether you’re applying for a personal loan or a credit card, the interest rates available to you may be higher following an interest rate rise than they are currently. It can be a good idea to compare several different deals before opening a new line of credit. 

 

Homeowners on a variable rate mortgage or those nearing the end of a fixed-rate period may see an increase in their mortgage repayments. 

 

Hopefully, most people will only experience a small change, but there’s no harm in being prepared! 

If you are able to fix, this could give you certainty over your repayments. In some cases, finding a new mortgage deal could leave you better off financially than you are now. 

Give us a call if you need any help or guidance! It’s what we’re here for after all.

Saving could become more rewarding

Many people believe there’s been little incentive to save in recent years, thanks to what feels like an eternity of low interest rates. 

 

Just a few years ago you couldn’t turn on the TV without seeing national treasure Martin Lewis praising high interest current accounts. Unfortunately, the banks became so frugal that he started telling us to switch energy suppliers instead! Now that good energy deals are few and far between, we can’t help but feel for the man.

 

Anyway, we digress. Generous current accounts are as rare as hen’s teeth and savings accounts aren’t any better.

 

If you’ve got cash in the bank, news of a potential interest rate may be music to your ears. 

 

Could this be the start of something special? We’re hopeful that our savings might work a little harder in 2022, but we won’t hold our breath. 

Investing remains essential for wealth building

If you want to build wealth for the future, investing is essential. A long-term financial plan that’s aligned to your goals is a sure-fire way to secure a comfortable retirement.

 

Many people have seen their stock portfolios decline in the last few days and some experts predict that uncertainty surrounding the new Omicron variant is responsible. But we’ve seen fluctuations like this many times before (remember the start of the pandemic?!) and it’s rarely a cause for concern. 

 

Most stocks will recover, and some will continue to go from strength to strength. 

 

Unless you need the money in the near future, step away from your laptop, and focus on having a good Christmas. At the very least, we’re hopeful it’s better than the last one! 

get-in-touch

 

(01202) 757136

office@firstgroupuk.com

4 Erpingham Road, Poole. Dorset. BH12 1EX

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