Naz Financial

A Personal Financial Blog from Naz Miller

High UK Inflation: How to Minimise the Pain

High UK inflation dominates the economic news at the moment. We all know it hurts, but do you know how you can mitigate at least some of its impact?

Inflation is the economic indicator that measures the general rise in prices of goods and services over time. While moderate inflation is considered a sign of a healthy economy, high inflation (such as we’ve been having in the UK during 2022 and 2023) can have significant implications for individuals’ savings, investments, and pensions. In this article, I’ll explore how high UK inflation affects the financial well-being of individuals and offer some mitigation strategies.

Do check out some of my other articles around this topic, too. For example,


Let’s look at what high UK inflation can do to you:

1. High UK Inflation Erodes Purchasing Power

High inflation erodes the purchasing power of money over time. As the cost-of-living rises, the same amount of money buys fewer goods and services. For individuals relying on their savings for day-to-day expenses, this can result in a diminished standard of living. It becomes particularly challenging for retirees whose pensions may not keep up with the rising costs of essentials like food, housing, and fuel.

2. Impact on Savings

Savings in traditional bank accounts may suffer the most during times of high inflation. While nominal interest rates may be positive, the real interest rate (adjusted for inflation) has already turned negative. As a result, the value of savings does not grow enough to outpace inflation, effectively shrinking the nest egg.

To combat this, individuals may consider alternative savings options, such as inflation-linked bonds or investing in assets that tend to perform well during inflationary periods. It’s generally wise to keep some of your savings in easily accessed places though, so don’t be afraid to shop around for better rates of interest.

These days you can switch savings accounts and ISAs easily. But if you decide on an ISA and want the best rates, you might need to commit to a particular product for a year or more. As a rule, the longer you’re willing to commit, the better rate you’ll get.

3. Influence on Investments

high-uk-inflationHigh UK inflation can also affect investments across various asset classes. While certain investments, such as property and commodities, may act as hedges against inflation, others like fixed-income securities may lose value as interest rates rise. Property in the UK right now is looking less positive, too, with prices softening in many places, following the bank of England’s interest rate rises.

Equity investments may experience increased volatility as companies face higher input costs, impacting profitability. Diversification across asset classes and regular portfolio reviews can help individuals navigate the complexities of investing in inflationary environments.

If you have funds you don’t need to touch for c.5 years or more, consider putting them into a stocks and shares ISA. They’re mid-to-long term investments, so you should only invest your money if you can afford to wait out any fall in its value.

And of course, past performance isn’t a reliable indicator of future performance. The value of your investment will go up and down, and isn’t guaranteed, so you may get back less than you put in.

There are some good tips in an article in the Times, from 24th July 2023.

You don’t have to be a financial expert to invest. Many stocks and shares ISA providers have a range of investments, that can match how much risk you want to take with your money. You just choose what works best for you.

4. Problems for Pensions

Individuals relying on pensions to fund their retirement face a unique set of challenges during high inflation periods. If pension payments are not inflation-adjusted, their real value may decrease over time. For retirees with fixed incomes, this could mean cutting back on discretionary spending or exhausting other savings to maintain their standard of living. Pension providers may offer inflation-linked pension options, providing a safeguard against the erosion of purchasing power. Beware their cost though!

If you have a draw-down arrangement for your pension, at least the pain is short term. As the economy recovers, your funds should too.

In conclusion …

… the high UK inflation we’re experiencing could significantly impact your financial security. The erosion of purchasing power, diminished savings growth, fluctuating investment performance, and challenges for pensioners are among the prominent concerns during inflationary periods.

To mitigate these effects, consider a diverse range of strategies, including inflation-linked investments, alternative savings options, and exploring inflation-adjusted pension plans. Staying informed about economic trends, working with financial advisors, and making well-informed decisions are crucial steps towards safeguarding your financial future amidst high UK inflation rates.

As ever, seek professional advice before making any big financial decisions, I’m always happy to talk. Contact me any time.

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Naz Miller

I'm Naz and I'm a Financial Adviser. Prior to working in private practice, I spent 34 years working at Lloyds Bank in Cambridge and surrounding areas. My work has always focused on helping clients achieve their long-term financial objectives.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.