Interest rates rises ‘not enough to fight corrosive’ inflation

Experts are warning the “corrosive effects of inflation” are continuing to hurt peoples’ savings pots.

The UK’s cash savings have fallen in 2023, according to the latest annual Cost of Cash research from Janus Henderson Investment Trusts.

In July, cash savings dropped to £1.95trillion which is down £5billion since the turn of the year.

This is primarily due to the cost of living crisis which has resulted in many households opting to budget instead despite rising interest rates.

However, Janus Henderson’s Cost of Cash research has revealed savers have already lost over twice as much to inflation as they have earned in interest.

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Some 22 percent of savers polled report they keep money in deposits or in physical cash to protect against inflation.

Since January, savers in the UK have earned an estimated £32billion in interest but inflation eroded the value of savings by £69bn across the same period.

The Bank of England has raised interest rates to 5.25 percent and is expected to keep the base rate at this level for the foreseeable future.

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Dan Howe, the head of Investment Trusts at Janus Henderson Investors, broke down the bleak reality for savers and investors.

He explained: “The current environment is undeniably difficult to navigate. We are presented with the reality of rising costs not only as we go about our daily lives, but as we read the headlines too.

“Interest rates, despite being at their highest level in 15 years, are still not enough to fight the corrosive effects of inflation.

“Taken together, it’s no wonder that many UK savers are struggling to decide how to best protect the value of their hard-earned savings.

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The investing expert encouraged people to keep on investing despite the current hostile financial environment.

Mr Howe added: “Environments like the one we currently find ourselves in can make us understandably wary about investing our savings, but the research shows that keeping them in cash has not protected them from inflation in the long-term.

“Since the beginning of 2021 savers have seen inflation consume one sixth of their cash savings, even after interest income has been added.

“In 25 of the last 34 years, equity investments have delivered superior returns compared to holding cash, and can provide investors with a much-needed boost to income in terms of capital gains and dividend payments, particularly when those dividends are reinvested.”

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