High Interest Rates and Rising Inflation – What should you do next?

The Bank of England increased interest rates from 1.25% to 1.75% and has predicted that the UK will fall into recession in the last quarter of 2022. So, with high interest rates and rising inflation what should you do next?

The Bank believes that increasing interest rates at a faster rate will mean spending will be controlled. But what happens in the meantime? What could these turbulent times mean for your business.

What is causing the economic issues in the UK?

There are several factors which are beyond our control that are playing out in the UK, and it feels like there is no end in sight.

But of course, this is never the case. This difficulty that we all find ourselves in will not last forever, but the ride is not going to be a smooth one.  Economists are growing increasingly pessimistic about the UK and so you need to prepare for the recession that is coming.

Earlier this year more than three quarters of UK business leaders were feeling optimistic about the coming year.

But having navigated through the first half of this year, it’s now clear that the external threats are putting pressures on our economy. Some of these pressures are:

  • The rising global costs of raw materials and soaring energy costs across the world due to the war in Ukraine;
  • UK being a net importer of energy;
  • Fall out of Brexit has meant we are experiencing the worst inflationary pressures compared to other countries in the G7 in relation to goods;
  • Brexit has also caused a shortage of labour; and
  • Lockdowns in China still causing supply chain issues.

Technically speaking in order to have a “recession” there needs to be two successive quarters of negative growth.  But as none of the factors above are getting better anytime soon most pundits now agree the UK will be in recession before the end of the year.


What can I do for my business now?

What can you realistically do now to protect your business?  As a business you have already had to adapt a lot with Covid, and it’s fall out.  But the economic climate again demands that you keep a very close eye on your finances.

The most important thing you can do right now is keep an eye on your cash flow.

You need to be completely on top of your figures and make sure you know exactly what is coming in and when.  If your customers are experiencing difficulties in paying you, talk to them and quickly.

At this point if you are using a cloud accounting software such as Xero or QuickBooks make sure you are doing your bookkeeping at least monthly if not weekly.  It will be easier to spot potential issues.

If outstanding customer balances become an issue than call us. We can recommend using very affordable Apps that can be useful to get those debts get paid faster.

You need to also make sure that your costs are under control. Under inflationary times it is very easy to lose sight of overspending.  So, prepare a budget and review monthly to see where the overspends are occurring.  Once you know the problems then you have a chance to get it sorted.


With high interest rates and rising inflation, what should you do next? What can you do to protect your personal finances.


Inflation is also a problem for us as individuals.

What’s more is people are finding that their household budgets are stressed. And even borrowers, who might be expected to benefit from inflation, suffer when inflation triggers increase in interest rates.

Those of you who are savers find that the value of your cash is being rapidly eroded. At 10% inflation, the £100 you save today will only buy £90 worth of goods in a year’s time.

So what can you do?


  1. Protect your retirement income.


Inflation has an enormous impact on how long retirement savings will last. The income that seems more than adequate when you start your golden years can look less than generous after 10 years of inflation, and a recipe for misery after 20.

A basic level annuity will mean having the buying power of your income eroded every year.

An inflation-linked annuity will start off providing a much smaller income, but one that keeps increasing over time.

A drawdown pension – where your pension pot remains invested, and you draw down an income as you need it – is more flexible. However, you will still need to take care to avoid running out of cash.

Take advice from your IFA on this.


  1. Avoid locking your cash away.


Savers should benefit when higher inflation leads to the Bank of England increasing the Bank Rate. But beware, although the rates offered by savings providers are rising, they have not yet increased in line with inflation.

However, with the Bank Rate forecast to rise further and with savings deals forecast to follow, there could be better deals to be had over the next few months.

Shop around for the best deal and avoid locking your savings into a long-term deal because it could mean missing much better rates.

Many are saying that we are due to have another half a percent rise in interest rates in September.


  1. Look at your investment strategy.


In an inflationary world, investing where your cash is used to buy something which could appreciate in price could be more rewarding than saving.

You can also protect yourself by buying index-linked bonds. This is when the interest paid rises in line with inflation

Or have you considered being a landlord?

  1. Secure a low-rate mortgage before rates rise.


Inflation has already triggered rate rises, and mortgages are more expensive than they were last year.

To avoid increasing interest costs, which could mean that buying your home becomes difficult or even impossible, it makes sense to secure the lowest rate you can, fixed for the longest possible period.

  1. Get some expert help.


Managing money in inflationary times can be challenging, but the challenges can be much more manageable if you have an expert to call.

If you want to talk about any of the points raised in this blog, please get in touch.  We are here to help.  You can email your normal director or manger.  If you have not worked with us then email Priya at priyar@myersclark.co.uk and she will be happy to put you in the right direction.