Your post-lockdown survival guide

The return of inflation as we spend our pent-up savings will make protecting wealth harder. Harry Brennan reports

After a year of economic lockdown, things are looking up. Millions have been vaccinated, pubs and shops are soon to reopen and life should gradually start to return to normal as the weather warms.

The Bank of England now thinks that the economy will recover faster than it first forecast after the worst economic hit for 300 years and should return to pre- pandemic levels by next year. It expects inflation to rise as consumers spend the savings they have built up over the past 12 months in places that were previously closed.

Some professional investors now see rising prices, not coronavirus, as the greatest threat to their clients’ money and are taking steps to protect against inflation.

The pandemic has dealt harsh blows and offered up some pleasant surprises – and the financial picture is sure to change yet again. But what is the situation now and how can you safeguard any gains you have made and benefit from the bounce-back at the same time?

SAVERS Millions have struggled while others have prospered. Almost 365 days after the Prime Minister ordered Britons to stay at home for the first time, around six million people are still getting by on Universal Credit – double the number who received the benefit before the pandemic, according to the latest official figures.

Unemployment is forecast to reach 6.5pc this year, up from the current level of 5.6pc, although that forecast is lower than earlier predictions thanks to the brightening economic picture. Indeed, many are better off. Households have put aside about £ 160bn in savings accounts since last March, according to the Bank of England, or £14.5bn a month on average. This is far higher than the £5bn a month recorded in the six months to February 2020.

The Bank expects families to spend 5pc of their additional savings as the economy reopens, helping to push inflation from its current level of 0.7pc to the official 2pc target.

At the same time, savings rates have fallen to their lowest level on record. Families earn just 0.4pc in interest on average and some none at all. Protecting the buying power of your cash has never been harder.

Yorkshire Building Society offers the highest rate on an easy-access account at 0.5pc, but you can withdraw money without penalty only once a year. Hodge Bank pays 1.3pc a year for savers happy to tie up their cash for five years in a fixed-rate bond. The minimum deposit is £1,000.

Premium Bonds offer the chance to win prizes of up to £ 1m via monthly draws and pay an effective interest rate of 1pc, assuming you have average luck.

The most that you can save is £50,000.

Hargreaves Lansdown, AJ Bell and Raisin all offer “savings hubs” that let you track the best rates and move your money without the hassle of setting up new accounts.

PENSION INVESTORS Retirement investors are also split. Almost 1.5 million people plan to delay their retirement for more than three years after the pandemic caused pension pots to fall in value. More than a million others, however, now plan to retire earlier because they have been able to save more, according to Legal & General, the insurer.

The state pension will increase to £ 179.60 a week in the new tax year