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bushboy

Inflation And Deposits

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I have a lump sum earning interest in the bank that i intend to add to as i save up a big deposit whilst house prices (hopefully) re-adjust significantly.

I am saving this money SOLELY for the purpose of buying a house/flat. Therefore although general inflation and therefore the cost of goods may rise, is this money a hedge against such general inflation as it will ONLY be used to buy an asset that is to depreciate in price?

Answers from those more economically minded greatfully appreciated.

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A potential problem to me is that it increasingly appears to be the case that the inflation books are being cooked. Each revision seems to make the methodology more complex and potentially more open to manipulation.

The BOE sets base rates using an inflation target, which your bank then use to set their own rates that get passed onto you.

So if the inflation rate in the first place is being understated then whilst your deposits interest is keeping up with the official government inflation rate you may actually be receiving a return substantially below the real rate of inflation.

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The inflation figures are being cooked. Your savings are being eroded in real terms, by quite a significant amount even after interest.

However as a saver you are not alone, the final end result is possibly not only a debtor nation with its back broken but a creditor nation with its back broken too - under those cirumstances there will be nobody able or willing to pay over the odds for anything - the free cashflow money simply won't exist to pay for it and prices and the consumer economy will crumble even further than many bears expect.

Savers are the spenders of last resort, desert them and you have no brakes for the fall.

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Your logic is entirely correct. Normally saving in this manner is a sure way of losing the value of your money (i.e. being eroded by inflation despite interest). You will always slowly lose the “value” of your cash. However saving for a pacific item, in this case a house, which we believe will fall in value, is a sound strategy. I have posted to this effect before. I would not advise, in general, that say BTL or deposit cash is invested in any thing with any element of risk. You are already betting against the housing market. A 3 to 4% return over say 3 years will give you a lot more purchasing power assuming a fall from current values.

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Saving a lump sum of cash is the same as saving up a lump of purchasing power. Whether or not your purchasing power goes up or down in the future will therefore depend on what it is you are wanting to purchase.

Therefore I totally agree with your logic and and also ignore general inflation figures in terms of the future value of my 'house money'.

My only concern is my own salary inflation compared to general inflation figures, which appear to be lagging somewhat. But then everyone's in the pretty much the same boat aren't they ?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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