As per the latest figures released by The Office for National Statistics (ONS), consumer price index, reached 4% in January, the retail price index, which includes housing costs, jumped to 5.1% in January.
Inflation at 4% is the highest annual rate in more than two years and twice the Bank of England's target. This puts the Bank of England under increasing pressure to put the base rates up from its existing 0.5%. Mervyn King, Bank of England Governor hinted that a rate rise could be in the offing this Spring. The Bank governor blamed the VAT increase of 2.5% in January, weak pound and the boom in commodity prices, especially energy prices. It is forecasted that inflation is likely to continue to hover around 4% and 5% over the next few months.
So what does this mean to you?
1. Less affordability
2. Reduced worth of your savings
3. Increased challenges for your business to meet its cost targets
Mervyn King recently warned that due to the inflation-adjusted wages falling over the past six years, families face the biggest squeeze on their spending power since the 1920s.
According to a leading website, in order to keep up with inflation and not reduce the worth of savings, a basic-rate tax payer (20% tax rate), needs to find a savings account paying 5% to keep up with inflation and a higher-rate tax payer (40% tax rate) needs to find an account that pays at least 6.67%. Research also reveals that there are no accounts available for any taxpayer that beat the Retail Price Index measure of inflation, which stands at 5.1%.
Businesses are already struggling to keep afloat and everyday there is news of atleast one major business going into administration. Any cost increases can tip the precariously placed business and force them to cut costs more drastically and unfortunately staff costs become the easy target.
Kesh Thukaram, Director Best Insurance stressed the importance of income protection insurance. Commenting on the latest inflation figures, he said that small to medium sized businesses, which comprise of 58-60% of UK employment will have to take some hard decisions to keep themselves afloat. It is ultimately down to individuals as to how prepared they want to be, if the worse were to happen and they get laid off. A decent payment protection and income protection insurance gives a bit of head room if people are made redundant and they don't have to jump and take the next available opportunity.
Best Insurance specialises in income protection, payment protection covers and offers a wide range of redundancy protection products including credit card protection.
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