The high levels of inflation we are currently experiencing have hardly been off the front page over the past few weeks, but the startling claim that inflation could rise to 8% by 2015 will surprise many.
The prediction has been made by Tony Nutt (below), a well respected fund manager with investment house Jupiter.
Nutt, who heads the Income & UK Equities teams at Jupiter, agrees with the Bank of England’s own prediction that inflation will fall in the short term but then believes it will rise significantly to a peak in 2015.
Nutt said: “Inflation will fall back in the final quarter of this year and the first quarter of 2012 but I am fearful of the years to come as the deleveraging process is going to take time to unwind.”
Nutt continued: “I think that inflation could hit 7 to 8% in the UK in the longer term. The historical evidence is clear. If there is a lot of money in the system that gets used and abused, it only leads to higher inflation. There is no doubt that quantitative easing leaked into emerging markets while the fuel and food cost push pressures do not help the argument that it will fall back longer term.”
The prediction will be greeted with dismay by the UK’s savers who are seeing the buying power of their savings fall due to the perfect storm created by high inflation and all time low interest rates.
Even after searching the best savings interest rates on best buy tables it is now impossible for a tax payer to find a deposit account which gives net interest equal to the current levels of inflation. Even deposit accounts for SIPPs, which do not have to pay tax on the interest received, are struggling to keep pace with inflation.
Those people with fixed incomes, such as people who have bought level Annuities, are also badly affected as are workers who are seeing below inflation pay rises.
If Nutt’s prediction is correct, and assuming we do not see a dramatic rise in interest rates, the problem of inflation eroding both savings and incomes will continue for some years to come meaning many savers will be forced to consider alternatives or see the real value of their capital fall.