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Inflation soars to 11.1% in new 40-year-high | Personal Finance | Finance

Figures released this morning showed Consumer Prices Index (CPI) inflation has risen to 11.1 percent. Last month, inflation hit a staggering 10.1 percent showing the impacts of the cost of living crisis.

However, experts believe this may be the point at which inflation peaks, and so this may be the highest figure seen in a while.

High inflation this month has been attributed to energy bills rising by a further 27 percent on average under the new heightened household energy tariff cap.

Myron Jobson, senior personal finance analyst at interactive investor, said this is shaping up to be a significant week for personal finances.

However, what does this mean for inflation in the future?

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Inflation has recently been described as a “constant foe” following reports it will destroy £184billion of the UK’s cash savings this year – even after interested income is added.

This is double the previous record set in 2021, and is more than total value of UK family savings lost to inflation in the 12 years from 2009 to 2020 combined, according to Janus Henderson Investors.

Suren Thiru, economics director for ICAEW, warned: “October’s hefty rise in inflation, fuelled by another punishing jump in energy bills, is pulling us closer to a damaging recession.

“Although it’s possible that the headline rate has now peaked, the Autumn Statement could significantly alter the outlook for inflation. While major spending cuts and tax rises could choke off demand in the economy, last month’s inflationary surge could be surpassed in April if the Chancellor substantially scales back the energy support package.

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“With inflation skyrocketing, another big interest rate rise in December looks likely. However, with a looming recession, tighter fiscal policy and stronger sterling set to subdue inflation, the case for aggressively tightening monetary policy should fade.”

Alice Haine, personal finance analyst at bestinvest, also outlined what high inflationary levels could mean for Britons going forward. 

She said: “High inflation is a nightmare for household finances, as it erodes spending power, gnaws away at savings and makes it very hard for people to maintain their living standards because their incomes simply don’t stretch as far. 

“Throw in higher borrowing costs as interest rates continue their upward trajectory and the prospect of higher taxes and household budgets are getting squeezed in every direction.”

Shona Lowe, financial planning expert at abrdn, warned people should brace themselves for the impact of inflation going forward, and added: “It’s more important than ever for people to consider ways to help mitigate the impact inflation is having on their money.

“This is particularly key for those that are relying on cash savings or investments, like retirees, as they will be seeing any cash savings lose real value as inflation increases and investment growth failing to keep pace.

“People shouldn’t panic and make hasty decisions, but do need to take some time to plan their best way through these challenging times, whether that’s revisiting their priorities when it comes to expenditure, considering which of their savings or investments should be used to meet that expenditure, seeing whether they can take advantage of higher interest rates on savings or reconsidering their investment strategy.” 

While Jonathan Moyes, head of investment research at Wealth Club, said this is “not an announcement for the optimists”.

He added: “Inflation is now at a 41 year high. Consumers should brace themselves for a grim winter of austerity, tax rises and further interest rate rises.”

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