Legal & General’s latest MoneyMood survey shows a big jump this year in the number of people who expect inflation to reduce the value of their savings and are likely to receive lower than inflation pay rises compared to last year.
Six out of 10 adults surveyed (59%) said they expected their earnings would fall behind inflation over the next 12 months, compared to 4 in 10 (38%) at the same time last year.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
However, the biggest change is in the number of households who say they expect their savings to fall behind inflation over the next 12 months. Eight out of 10 households (78%) say they expect their savings will grow by less than inflation compared to only 3 in 10 (29%) last year.
Pressure on earnings, erosion of savings
Commenting on these figures Mark Gregory, Legal & General Chief Executive Savings said; "For many households the latest ONS report saying inflation remains stubbornly high will be no surprise.
The big change is that many more households have come to realise that they have to deal with high inflation combined with low interest rates, largely as a result of the Bank of England policy on QE.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataWhile low interest rates are good for borrowers, when inflation remains high that does come at a price for savers.
It is worth remembering that wage growth has been well below inflation (according to the ONS) for most of the last four years.
Our latest figures show 6 out of 10 households expect their income to fall in real terms over the next 12 months as well.
Savers are also increasingly aware that the combination of low interest rates and high inflation reduces the value of their savings and hits income for those who depend on their savings to provide extra cash.
Since the Bank of England started cutting the base rate the "typical" savings rate has plummeted.
Our MoneyMood research shows 8 out of 10 households expect the value of their savings to fall again over the next 12 months.
People will either have to save more or look to save in different ways, or both to combat inflation."
More of the same:
In May last year the Bank of England Governor, Mervyn King, told us he anticipated inflation to be higher than the BoE 2.0% target over coming months. At that time CPI inflation was 3.0% (April 2012)
ONS reported CPI fell in April this year. However, the Bank of England’s quarterly inflation report, published last week, predicts that inflation will peak above 3% in the third quarter of 2013.
This is no longer ‘news’ to the average man in the street.
Last year 9 out of 10 households (88%) in our MoneyMood survey said they expected inflation to be higher or to stay the same over the next 12 months. This year the number is virtually unchanged at 90%.
Thinking about "earnings" several regions showed a higher proportion of people who felt that their earnings would fall behind inflation than the national average – most notably London (65%), Wales (66%), East Anglia (65%), Yorkshire and Humberside region (61%) and the North East of England (64%).
Interestingly, when thinking about their savings and perhaps due to the variation in demographic make up of the regions, different regions showed higher numbers of people worried about the impact of the falling value of their savings than the 78% figure for the UK as a whole – the South West (82%), West Midlands (84%), the North East (82%) and Scotland (85%) showed more people worried that their savings would not grow as fast as inflation this year.
Research for the Legal & General MoneyMood Survey was carried out by TNS Omnibus.
