Published: 28 July 2023
What's inflation?
Simply put, inflation is the change in price of the things you buy compared to last year. So, inflation means that the things you bought last year would cost you more now. If the rate of inflation is 5%, the price of goods and services has risen at 5% on average. So, if half a dozen eggs cost you £1 a year ago and the inflation rate is 5%, they’ll now cost £1.05.
The government’s inflation target is 2%, but in June 2023, inflation reached its highest point since 1981. This affects a lot of things from the cost of things you buy in the shops, to the wages workers receive.
Why's inflation so high?
High inflation has been caused by several different things, that all happened to occur at around the same time.
The war in Ukraine has put pressure on gas and oil prices, as well as limiting the amount of grain we’ve been able to get. Plus, freak weather earlier in the year led to a shortage in certain crops, making some foods more in demand and pushing prices up.
How does this affect my savings?
The Bank of England keeps a close eye on the country’s inflation, with a target of keeping it at 2%. It’s a lot higher than that right now, so they’re trying to tackle this by raising their base rate of interest.
When the Bank of England base rate goes up, interest rates for mortgages and savings accounts follow. This encourages people to save their money instead of spending it. This could eventually lead to prices rising more slowly as there’s less demand.
This means that savings rates are currently higher than usual, making it a more attractive time to put money away for the future. As inflation leads to you getting less value for your money, earning interest in a savings account can also help offset this.
We have a number of savings accounts available, take a look at our range today.
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.
This Leeds Building Society article is intended for information purposes only and is accurate at the time of publication. It’s always advisable to verify any information before relying on it.
