Financial Planning

Are high interest rates and inflation here to stay?

Are high interest rates and inflation here to stay?

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult an independent financial adviser.

Did you know that, since the 1970s, low interest rates (under 5%) have not been the norm? Many have enjoyed and accepted near-0% rates since 2010, leading to historically-low interest on monthly mortgage payments. Yet some economists are now arguing that this “era” is coming to a close. Instead, we could now be facing years of not only higher interest rates but also higher prices – due to rising inflation.

In this article, our team examines whether this argument holds merit and what the implications might be for your financial plan.We hope this is helpful to you. If you want to discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:

020 8366 4400 or


Is UK inflation here to stay?

It was not too long ago that the Bank of England (BoE) was reassuring us that rising inflation was merely “transitory”. Inflation had been starting to exceed their 2% target since May 2021, yet the Monetary Policy Committee (MPC) deemed that this would soon fall and was mainly due to short-term factors such as “Developments in energy and other goods prices”. Unfortunately, this analysis has proven to be wrong. 

Over-2% UK inflation in 2022 is likely to persist into 2023 and even beyond. This is partly due to the UK’s high reliance on food and energy, which are heavily imported and are facing consticting supply due to the rising global population and also geopolitical factors (e.g. the war in Ukraine; a major producer of agricultural goods like wheat and sunflower oil).

Therefore, those hoping for a decrease in the price of their weekly food shop, car repairs, petrol costs and professional haircut are likely to be disappointed. The OECD has forecast that UK inflation could reach over 10% at the end of 2022, and the BoE has said it could reach as high as 13.3% by October. From 2023, hopefully, these double-digit forecasts may start to fall. Yet this is not guaranteed and unforeseen events could turn the tables.

The world is still highly unstable. For instance, a Chinese invasion or blockade of Taiwan would cause big problems since the island provides 92% of the world’s most advanced semiconductor manufacturing. Any interruption of supply could cause a major shortage of electrical goods and drive inflation up even further.


Are high UK interest rates here to stay?

If over-2% UK inflation is likely to remain for some time, what does this mean for interest rates? Historically, central banks have raised their rates when inflation goes up to try and “cool down” the economy. This is because people may be led to save more (to access higher rates from savings accounts) and reduce the levels of spending that can drive up prices. 

Since the end of 2021, the BoE has raised the base rate six times from its historic low of 0.10% to its highest level since 2009 (1.75%). Some forecasts predict that this could reach 2.25% or even over 3% in 2023. Yet it is not clear how much successive interest rate increases will bring inflation back to near 2%. Many of the UK’s inflation woes emanate from overseas and are not driven primarily by domestic forces (which the BoE has more control over). Also, the BoE must be careful not to raise rates too high – leading to mortgage defaults (due to households no longer able to repay) and business failures (due to prohibitive borrowing costs).


What does all this mean for my financial plan?

If the era of sub-1% interest rates and 2% inflation is gone for the foreseeable future, what are households supposed to do? Firstly, households should seek to get the best mortgage deal. Whilst a minority will still do best on a standard variable rate (SVR), many are likely to benefit more from a fixed-rate deal that keeps your monthly repayments steady over the coming years. At the very least, this can help you plan ahead more with your budget even if other expenses rise in the future (e.g. fuel and food).

Secondly, be careful not to hold too much in cash. Whilst it is generally wise to have 3-6 months’ worth of living costs in an easy-access savings account (for emergencies so you are not forced to turn to credit), any extra wealth is likely to be better-deployed in other assets that have more chance of matching – or beating – inflation, such as equities. Here, a financial adviser can help you construct a well-diversified portfolio which reflects your goals and risk tolerance.

Thirdly, take full advantage of every tax break that you are entitled to. Sole traders should claim all qualifying expenses to lower their income tax bill. Married couples and civil partners should claim the marriage tax allowance (worth up to £252) per year if they qualify. Ensure that you claim back any overpaid tax from HMRC (e.g. if you were placed on the wrong tax code after changing jobs). 



Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:

020 8366 4400 or


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