Inflation is killing your savings - what you must do to combat it
The American economist Milton Friedman once said: 'Inflation is the one form of taxation that can be imposed without legislation.'
Yet for most people, it slips under the radar, affecting our spending power without us giving it a second thought. In recent years, inflation has made headlines more than usual, from the post-COVID stimulus surge to its gradual retreat.
I first raised concerns about the risk of rising inflation over three years ago. To me, it felt inevitable. Professional investors and economists should not have been caught off guard by its rise. What was surprising, however, was just how far and how fast it went.
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Inflation is a normal part of the economy, and it shouldn't be feared. However, when it gains momentum, it can spiral out of control, leading to a rapid increase in prices. This is what we have recently experienced, which led to the cost-of-living crisis that affected everyone.
Inflation and its impact on wealth is often overlooked. I tell my clients that inflation is one of the biggest risks to their money. Why? Because inflation is effectively a constant tax on the value of your pounds and assets, a tax that we all collectively pay.
Consider this: since 1989 inflation has averaged around 3%, which to most people would seem modest. But this means you would need to achieve at least a 3% return on your cash savings and investments, after tax and costs, each and every year, to maintain the value of your money.
In other words, you need £189 today to buy the same goods which would have cost you £100 at the turn of the millennium, just because of inflation.
That's why I advise against keeping excessive amounts of money on deposit for prolonged periods of time. Inflation is like carbon monoxide to your money: it's a silent killer of wealth creation, of which few people are aware.
So, what's the solution? The answer lies in investing rather than maintaining cash deposits (savings). The MSCI World index, which is a collection of the world 's largest companies in developed countries, has delivered 10.5% pa average return over the last 20 years for UK investors. Even after accounting for fees and tax, you'll comfortably stay ahead of inflation.
This is one reason why the wealthy get richer during inflationary times: they understand that companies can increase their prices and profits, which helps share values rise.
You too can participate and grow your wealth over the next 20 years, even if you start small, but you must start. Now, more than ever, it's crucial to focus on the importance of investing to combat the negative effects of inflation. The recent high inflation rates serve as a stark reminder of this necessity.
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The Herald Scotland
4 hours ago
- The Herald Scotland
Scotch whisky distillers change course as US lifts barriers
'What we're seeing right now is a once-in-a-generation set of challenges facing the Scotch whisky industry,' a spokesperson for the Scotch Whisky Association said. 'Businesses of all sizes, but particularly SMEs (small and medium-sized enterprises), are operating under considerable strain as input costs have risen, from increased raw material and energy prices to the rise in employment costs. 'Consumer spending is also being impacted, the impact of which is being felt across the supply chain and hospitality sector. 'On the international stage, the key markets relied upon by smaller and medium sized companies to establish their business – the UK, the EU, and the US – are all facing their own unique obstacles which have put up barriers to trade and access.' The founder of one Scotch distillery said it has switched its focus to Asia because of the higher cost of exporting to the US. 'It's a real challenge for us,' said Martin Murray, co-owner of Thurso-based Dunnet Bay Distillers. 'We'd set out a plan for 2025 with market visits and investment, but that has been significantly impacted by the US tariffs. As a result, we've changed our strategy to be investing in sales in Asia. Our sales in China are going well in a market that still has challenges post-Covid.' Ian Palmer, founder of InchDairnie Distillery in Fife, said: 'The immediate term impact has been confusion and uncertainty over the tariffs leading to our distributors being very cautious. 'In the long term, there will be price increases for the US consumer leading to a loss of volume and that will be more evident at the 'value' end of the market.' Despite the challenges in the US, industry figures are encouraged by the recent signing of the UK-India trade deal, which will bring freer access for exports to one of the world's biggest whisky markets, as well the emergence of key markets in Asia such as Vietnam. Scotch whisky veteran Billy Walker, owner of The GlenAllachie Distillery in Speyside, said: 'There's money to be spent there. I can see Vietnam becoming a huge holiday area in the next few years because it has such a wonderful coastline with remarkably decent infrastructure. 'And they are knowledgeable. They are not novices when it comes to Scotch whisky.'
The Herald Scotland
5 hours ago
- The Herald Scotland
Scotch whisky industry sailing through choppy waters
The Trump tariffs landed as distillers were dealing with an almighty hangover from a post-Covid boom. Demand for premium Scotch whisky cooled as economic conditions deteriorated in key markets such as China, the US and Latin America, leaving importers with surpluses of stock to work through. Geopolitical turbulence, with Russia continuing its assault on Ukraine, attacks on shipping in the Mediterranean, and conflict between Israel and Hamas in Gaza, has done nothing for consumers' thirst for the water of life either. The impact of these challenges has been writ large in recent results from major industry players. In June, Bruichladdich owner Remy Cointreau cited the volatile global economic and geopolitical backdrop as it scrapped a key long-term target, highlighting the effects of tariffs both in US and anti-dumping duties in China, a major market for the company's Cognac exports. That came shortly after Johnnie Walker Diageo warned in May that US tariffs may hit its profits by $150 million a year. Pernod Ricard, owner of Dumbarton-based Chivas Brothers, cited the fall-out from US tariffs in April as sales fell short of forecasts in the third quarter. Given this background, it was no surprise that Scotch Whisky Association (SWA) was blunt in its assessment when asked to comment on the trading outlook by The Herald Business HQ Monthly, with the industry body also highlighting the impact on distillers from the high cost of production. Read more: 'What we're seeing right now is a once-in-a-generation set of challenges facing the Scotch whisky industry,' a spokesperson for the SWA said. 'Businesses of all sizes, but particularly SMEs (small and medium-sized enterprises), are operating under considerable strain as input costs have risen, from increased raw material and energy prices to the rise in employment costs. Consumer spending is also being impacted, the impact of which is being felt across the supply chain and hospitality sector. 'On the international stage, the key markets relied upon by smaller and medium sized companies to establish their business – the UK, the EU, and the US – are all facing their own unique obstacles which have put up barriers to trade and access. The US is our most valuable market, and is vital for many companies as they establish their export portfolio. 'It's important that talks continue between governments on both sides to reduce the current 10% the tariff burden for Scotch in the US. In the EU, we are monitoring developments on the new UK-EU deal to understand how the Scotch whisky industry can benefit.' With the impact of tariffs imposed during the first Trump president still fresh in their minds – the 25% tariff on single malt is believed to have hit exports by £650 million - Scotch whisky distillers are reporting disruption in the US market. Some distillers are changing their approach to the US, which remains the sector's biggest market by value. The value of Scotch shipped to the US was measured at £971 million in 2024. (Image: GlenAllachie) Billy Walker of GlenAllachie is upbeat about the industry's prospects in Vietnam 'The immediate term impact has been confusion and uncertainty over the tariffs leading to our distributors being very cautious,' said Ian Palmer, founder and chairman of InchDairnie Distillery in Fife. 'In the long term, there will be price increases for the US consumer leading to a loss of volume and that will be more evident at the 'value' end of the market. 'The more premium end will be better placed to ride out the storm. Our brands, our Scottish rye whisky, RyeLaw, and our recently launched peated malt, KinGlassie, are both at the premium end. At present we are managing both our costs and our price point, as well as preparing to be flexible. 'Historically, the US has always been seen as solid and safe market. This has gone now, so we are looking to manage the risk by ensuring we have a good geographic spread for our brands.' The uncertainty which has arisen from the Trump tariffs was also highlighted Martin Murray, co-owner and founder of Thurso-based Dunnet Bay Distillers. 'It's a real challenge for us,' he said: 'We'd set out a plan for 2025 with market visits and investment, but that has been significantly impacted by the US tariffs. It feels like we're living week to week and that's not good for anyone in the supply chain. The possibility of [tariffs] rising to 25% would have a big impact on sales and investment in this market. As a result, we've changed our strategy to be investing in sales in Asia. Our sales in China are going well in a market that still has challenges post-Covid.' Commenting more generally on the outlook, Mr Murray added: 'Currently, it certainly feels very turbulent, but there is an underlying resilient demand. We're braced for a challenging period, whilst things come back into balance. At the moment it feels like it's perfect storm of economic headwinds, trade policy uncertainty and changing behaviours. 'The biggest threats are tariffs in the US, and the impact on increasing costs in hospitality in the UK. For us we see the opportunities as being the continued trend of premiumisation and emerging markets.' Scotch whisky veteran Billy Walker, owner of the GlenAllachie Distillery in Speyside, said he is working in partnership with its US importers to spread the cost of tariffs on both parties. Read more: Mr Walker, who before acquiring GlenAllachie had built up and sold the BenRiach Distillery Company and previously worked for Ballantine's, Inver House, and Burn Stewart, said: 'We're trying to mitigate [the tariff] by taking 50% of it on us. So from an importer's point of view, they are going to be confronted with a 5% [cost increase]. 'But on a general position, these tariffs are going to be more damaging than the previous ones, because the previous ones were only on single malt. These are on all Scotch whisky.' Asked if there was any hope of the US tariffs on UK goods being reduced, Mr Walker said the SWA, which represents the industry in government matters, was doing a 'terrific job with the appropriate political people in the UK to find a way to mitigate them, or to get them reduced or removed'. But he said: 'I don't think they are going to get them wholly removed… it would be really welcome if they disappeared completely, but I don't think that is likely in the short-term.' Despite the challenges on the immediate horizon across the Atlantic, distillers emphasised the importance of the US market to the industry's prospects in the long run. Richard Urquhart, sales director at Elgin-based Gordon & MacPhail, owner of the Benromach and The Cairn distilleries in the north of Scotland, said the importance of the US to the company and the wider industry 'hasn't changed despite the imposition of tariffs'. Mr Urquhart said: 'While these tariffs have undoubtedly introduced added complexity and cost pressures, we remain committed to the market and to our American consumers and we will continue to work closely with our in-market partners to minimise impact. 'In terms of strategy, we will continue to navigate the changing environment. It's not about pulling back, it's about adapting. We remain focused on delivering exceptional whisky experiences, regardless of the trading climate.' For some distillers, it is a case of as you were. William Dobbie, managing director of R&B Distillers, owner of Isle of Raasay Distillery, said that US tariffs 'present a bit of short-term but are manageable together with our import partners'. He told The Herald Business HQ Monthly: 'The tariff on UK goods is not as punitive as some other regions in the world, which is manageable for now. The US tariffs are not changing our strategy at all. In fact, we are investing in the US market and plan to have some boots on the ground there over the next 12 to 24 months. 'Our independent, private ownership means we can take a very long-term point of view and allow us to make decisions that will put the business in a strong place long after the challenging short-term market conditions we are experiencing. If we changed our business plans at every whim of the current US administration we would be changing them every week, which is not something we have a desire or need to do.' Read more: Away from the US, distillers' hopes of building sales in the burgeoning spirits market of India received a major boost recently. The UK-India trade deal, which followed years of negotiations between the two countries, halved tariffs on imports of whisky and gin to India from 150% to 75%. The tariffs will then be reduced to 40% by the 10th year of the agreement. 'The UK-India trade deal is genuinely transformational for the Scotch whisky industry,' said Mr Murray at Dunnet Bay Distillers. 'Reducing tariffs from 150% to 75% immediately, and to 40% by year ten, opens unprecedented opportunities in what's already the world's largest whisky market by volume. 'Industry experts estimate this could increase Scotch exports to India by £1 billion annually, while generating £3.4bn in additional tax revenue for the Indian government through increased sales. For new distilleries like Castletown Mill, this is particularly significant because the deal enables smaller and independent producers to access the Indian market for the first time. 'India's growing middle class of over 300 million people represents a massive opportunity for premium spirits with authentic heritage stories. We've just got to be patient as we start our distillation of whisky this year.' Other markets are emerging strongly for the industry. Mr Walker highlighted the potential of a range of markets in Asia for Scotch whisky, including South Korea, Taiwan, Singapore and Malaysia, and singled out Vietnam as one to watch. Describing Vietnamese people as 'hard-working, energetic, and entrepreneurial', Mr Walker said: 'There's money to be spent there. I can see Vietnam becoming a huge holiday area in the next few years because it has such a wonderful coastline with remarkably decent infrastructure. 'And they are knowledgeable, they are not novices when it comes to Scotch whisky.' Mr Palmer also highlighted the potential of Asia for the industry. He acknowledged Asia and South America are 'not immune' to the current economic and trade uncertainty, but forecast that 'Asian markets will probably come out of the mist sooner than other markets'. Mr Murray added: 'We're finding challenges in most markets at present. The recovery post pandemic has not materialised and we're still seeing consumer spending habits changing. There are signs of a recovery with orders coming in regularly from China.' While there has been a steady flow of new distillery openings in Scotland over the last couple of decades, the current conditions may lead potential developers to think twice about investing in new facilities for Scotch whisky production in the current climate. Mr Palmer believes there is currently 'plenty' of distilling capacity, 'so any new distillery will have to have a long-term funding plan in place and develop a product that brings something new to the marketplace'. He added: 'I don't think more of the same will work in the current economic environment.' Mr Murray was slightly more optimistic on this front, noting: 'I believe there is still scope for new distilleries to open. I believe the traditional route to market is going to be less important as direct digital marketing and sales give new distilleries access to a significant audience willing to pay for premium products. 'Emerging markets have the place to play in supporting new distilleries' sales in the long term.'
Spectator
8 hours ago
- Spectator
What hope is there for today's unlucky graduates?
I'm fresh out of advice for those now leaving university and wondering how on earth they're going to make a living and live their dreams. This week's bad news (from the job search website Adzuna) was that graduate and other entry-level vacancies have fallen almost a third since the launch of the AI chatbot. Should this unlucky post-Covid cohort stay on at 'uni' for another degree? Or does that mean racking up student debt without enhancing employability? I used to urge everyone to go abroad in their twenties before family responsibilities overtake. But where to now? Hong Kong and mainland China are out; it's the wrong time to go to America or the Middle East; they'll need work permits for the EU. Maybe Mark Carney's resurgent Canada – a destination out of fashion for Brits since the 1950s – will become the hot new place to go. Closer to home, what of careers in journalism? At a recent seminar in Oxford, a panel of veterans agreed it's more fun than having a real job but demands relentless self-promotion to achieve bare subsistence earnings. And oldsters like me can't even use a lifetime's contacts to help youngsters who have the gumption to ask, because these days that's seen as elitist and unfair. What else can I say? You're on your own, kids. But when I was your age in the 1970s, prospects felt a lot darker than today. It took a decade and a radical change of government, but horizons eventually brightened beyond anything we imagined at the nadir. So wait for the wheel of fate to turn, and meanwhile keep busy in the most stimulating ways you can find. You might become a day trader, dabbling in any market – crypto if you must – that moves. And there I might be able to help with occasional tips, noting smugly that shares in the gold miner Fresnillo are up 44 per cent since mentioned in April. More sensibly, you might start your own business. I laughed at a picture of Chancellor Rachel Reeves, who has done so much harm to enterprise, 'saluting start-ups at No. 11'. But she's right that high-growth companies are the only things that will create better jobs to replace so many that have gone missing. And I can help there too, by pointing you towards The Spectator's Economic Innovator Awards. One way or another, my young friends, the motto must be never lose hope. Lotus crash? 'Lotus to end carmaking in the UK after 70 years' was Saturday's headline, followed by 'Reprieve for Lotus factory in Norfolk' on Sunday. What happened in between? The Lotus sports car marque has long stood for engineering brilliance combined with financial turmoil. Since 2017 it has been controlled by Geely, the Chinese giant which also owns Volvo. In response to Donald Trump's tariffs, it halted production in Norfolk where it employs 1,300 workers and was reported to be planning a new plant in the US. But after an intervention by the Business Secretary Jonathan Reynolds, Lotus's (presumably AI-driven) PR machine changed its tune to 'exploring strategic options to enhance efficiency and ensure global competitiveness in an evolving market'. Whatever that means, expect Lotus to depart these shores by next year. Lost tribe At a 90th birthday lunch for a friend from my banking career back in the mists of time, I'm moved to an impromptu speech quoting my long-forgotten book Falling Eagle: the Decline of Barclays Bank, in which I wrote that great companies have never been 'machines for making money' but are 'accumulations of human skill, hope and weakness' with the distinctive character and folklore of historic regiments or primitive tribes. For those present, it felt as though our Barclays regiment had been disbanded – our tribe dispersed, if you prefer – a generation ago: none felt pride or affection for the bank of today beyond, let's be honest, its defined-benefit pension scheme. And as if to confirm that sense of severance, up popped news of Jes Staley, the pugnacious American boss of Barclays from 2015 to 2021 who stood down after a Financial Conduct Authority investigation into his friendship with the sex offender Jeffrey Epstein, but challenged the FCA's decision to ban him from senior jobs in financial services. The Upper Tribunal upheld that judgment last week and the FCA repeated its finding that Staley had acted recklessly and 'with a lack of integrity'. 'Every time a sentence is written about him,' one City source observed, 'Epstein will get a mention.' Indeed so – and every time Barclays is named alongside, our lost tribe will utter a collective sigh of regret. Rail against I warned a month or so ago that ministers and union leaders who are ideologically set on renationalising the railways were also conspiring to scrap the passenger-friendly 'open access' system that allows licenced operators such as Lumo and Grand Central to compete against mainline franchisees. Following a select committee hearing in which Mick Lynch of the RMT union damned as 'parasites' these freelance services which many regular travellers regard as the best thing on the network, the Secretary of State Heidi Alexander has ordered a 'review' of open access, on the basis of a claim that it extracts 'supernormal profits' of more than £200 million a year at taxpayers' cost. Several new open-access bids, including one from Sir Richard Branson to bring Virgin trains back into competition against Avanti on the West Coast mainline, are under threat – and despite Alexander's assurances to the contrary, I'd bet on open access being abolished entirely by the time Labour limps out of power. And now the King has been persuaded to decommission the royal train. Why am I suddenly seeing a vision from Doctor Zhivago of the Bolshevik commander Strelnikov lurking behind his armoured locomotive?
