Over half of UK high net worth individuals (HNWIs) are unconcerned about the effects of inflation on their finances, in YouGov research released this month by Canaccord Genuity Wealth Management (CGWM).
55% of a sample of 1,006 HNWIs (£750k savings/assets excluding main home) said they are not worried about the impact of inflation on their savings and investments, despite the Bank of England anticipating a spike in inflation in the last quarter of the year. 44% of respondents said they are worried about the effects of inflation and there was a slight gender discrepancy, with 46% of men being worried, while 42% of women are concerned.
£1000 put in a savings account ten years ago would have a real value today of just £877
One indicator that HNWIs might be underestimating the impact of inflation is that they seem to be ‘glass half full’ when it comes to assessing the value of cash over a ten-year period. When asked how much £1000 put in a savings account ten years ago would be worth today, the average estimate was £1404 (women estimated £1336 and men £1470). The reality is that today, it would have a real value of just £877.
This benign view of inflation is concerning, given that HNWIs have accrued significant pots of cash during the pandemic. A quarter (23%) have saved more than £20,000 since the start of the Covid crisis – 15% have saved between £20,000 and £50,000 and 8% have put away over £50,000. This pot of cash is burning a hole in most HNWI pockets, with 41% planning to spend it. But for the 18% who plan to keep it in cash (continue to save), this is worrying given the Bank of England’s expectations of a temporary rise in inflation.
Chris Colclough (pictured), Head of Wealth Management at Canaccord Genuity Wealth Management in Guernsey, said: “It’s not just the wealthy that have underestimated the recent rises in inflation; over the last 12 months central banks, such as the Bank of England, have needed to double their original forecasts for the level inflation might peak to during this cycle to 4.0%.
“One does not need to look very far to feel this pricing pressure; across Guernsey, local property prices, building materials, furniture, hospitality wages and food prices are all on the rise. It has been driven by supply pressures, which have led many to presume it will be a transitory effect. However, the same supply impacts from the pandemic are likely to persist through to 2022, and as so we expect local inflationary pressures to continue the same trajectory as the UK. Guernsey’s Retail Prices Index (‘RPI’), for example, has already risen from an annual rate of 1.0% to 2.2% over the first six months of this year.
“The simple rule of economics dictates if interest rates are lower than inflation, inflation will erode the real value of your cash savings over time. If savers have surplus cash holdings, then they are likely to be better off investing at least a proportion in a diversified portfolio.”