The impact of inflation on high net worth customers


Could the UK hit double digit inflation for the first time in over 30 years?

The Bank of England has predicted that inflation could hit double digits by the end of the year. Gradually inflation erodes consumer purchasing power and its effect varies considerably, depending on an individual’s income and how they spend their money. What you could have purchased for £1,000 in 2012 for instance, will now cost you £1,258 because of inflation.


In February 2022, the Consumer Prices Index (CPI) was at 6.2% and the Consumer Prices Index including owner occupiers' housing costs (CPIH), that includes owner occupiers housing costs, hit 5.5%. UK inflation hit a 40 year high in April 2022, when it reached 9% and the Bank of England (BoE), are now expecting inflation to rise even higher later this year. It’s a big deal as general inflation measured by CPI over the past 10 years has averaged at only 2.4%.

Part of the latest round of inflationary increases has its roots firmly in the Covid-19 related supply chain disruptions; sharp rises in energy and fuel prices; and more recently problems arising from the Ukraine invasion.

Another less known factor stoking inflation is the ‘wealth effect’. The UK population has many affluent households with secure and well-paid employment. On the other hand, there are others less fortunate, who are impacted immediately by inflation when a large proportion of their income is spent on necessities rather than desirables.

Those with wealth tend to inherit more and as they have managed to put aside money and invest surpluses, they will be least damaged by any rampant inflation in the economy.

During times of recession, high net worth (HNW) household purchases are the very last to be influenced by reduced demand. What’s more, with the accumulated savings they’ve made during lockdowns there has even been a recent increase in demand, acting to further drive up prices for luxury goods. An effect that may accelerate if the availability of resources or commodities becomes scarcer as further embargoes or world supply and manufacturing delays start to bite.


Find out more below about how each of the below areas are affected by inflation.

For the future, provided there are no further financial shocks to the economy, the BoE suggest that we will encounter higher inflation rates for a short period before they start to fall back again.  Lower income households will unfortunately be disproportionately affected by the sudden impact of these significant rises in inflation, with higher tax, energy, gas, food, and travel costs.  Higher income mid and HNW households often save more but spend more on goods and services, allowing them to manage temporary general inflationary increases better.

Mark ArendsThis article was written by our HNW technical consultant, Mark Arends.