Britons Unaware Of Effect Of Inflation On Savings

Many people do not know how inflation affects their medium-term finances, it has been said.

The majority of Britons are unaware about the effect inflation is having on their money stored in savings accounts such as ISAs in the wake of the global economic downturn.

That is according to Justin Modray of online resource Candid Money, who has noted that there seems to be a general lack of understanding among consumers with regard to how this figure impacts on their personal finances.

Mr Modray explained that while many people grasp the influence of inflation on everyday essentials such as gas and electric due to the clear rises in pricing it is causing, they are not yet considering how this will affect them in the longer term.

Earlier this month, it was announced that inflation fell to 4.2 per cent in June in comparison to the 4.5 per cent recorded in May, while the Bank of England opted to maintain the base rate of interest at its historically low level of 0.5 per cent for the 28th month in a row.

However, the Candid Money official insisted that how such statistics impact their financial future is rarely thought about by individuals.

"I think food and fuel price inflation have definitely hit home for most of us, as it's very easy to spot prices rising during your weekly shop or at the pumps," he noted.

"However, I'm not sure many appreciate how inflation affects their finances medium-term."

These comments appear to be backed up by the findings of research published by the Post Office recently (July 11th), which showed that while 93 per cent of Britons indicated some concern about inflation, just five per cent actually knew what the figure was.

Mr Modray concluded that people should know that inflation is "generally a good thing" when they borrow money as long as their salary goes up simultaneously, as it means "future payments will cost you less in real terms".

Mark Saddleton, head of economic and market analysis at Nationwide, made the claim following the organisation's Consumer Confidence Index for June 2011.

It discovered the levels had dropped to a subdued standard last month, following a "substantial uptick" of 11 points in May.

Mr Saddleton suggests this shows that consumers lack spending power due to their challenging financial circumstances.

The fall in sentiment regarding major or household purchases is hardly surprising, he states, adding: "Consumers are feeling wary of taking on more debt or eating into their savings for big-ticket purchases."

Current account holders may also be suffering, as Mr Saddleton explains the weakness in spending power could mean that prices on the high street face pressure to decrease.

Justin Modray from online resource Candid Money recently discussed finance options such as credit cards and said banks and building societies have become "more discerning" when approving such options for their customers, following the economic downturn.