Saving shortfall looms as UK inflation hits two-year high
UK INFLATION hit a two-year high of 1.2 per cent in November, in worrying news for already-stretched savers.
Official data released on Tuesday put the cost of living at the higher end of forecasts, yet the Bank of England is still widely expected to hold interest rates at 0.25 per cent on Thursday.
The latest figures add weight to the theory that October’s fall in inflation to 0.9 per cent was just a blip due to cheaper clothing prices.
The continuing weakness of sterling following June’s Brexit vote has drastically increased the cost of imports, which has had a knock-on effect on the price of goods.
“We expect consumer price inflation to trend markedly higher over the coming months as sterling weakness increasingly feeds through,” said Howard Archer, chief European and UK economist at think-tank IHS Global Insight. “December’s jump in oil prices to an 18-month high will also impact.
“Specifically, we see inflation reaching its two per cent target rate during the first quarter of 2017, then rising to three per cent in the latter months of next year and peaking around 3.3 per cent early on in 2018.”
Yet it seems likely the central bank will keep interest rates at a historic low this week, meaning high-street banks will not increase rates on savings accounts.
“The Bank of England will likely take the rise in inflation to 1.2 per cent in November in its stride, and it does little to dilute belief that interest rates are likely to remain at 0.25 per cent not only on Thursday after the December monetary policy committee meeting but for a prolonged period,” said Archer.
He predicts interest rates could stay at 0.25 per cent until 2020, as the central bank grapples with economic uncertainty surrounding the UK’s long, costly and opaque unravelling process from the EU.
Read more: More pain for savers as Bank of England warns on skyrocketing inflation
Meanwhile, new data from Moneyfacts has revealed that the number of savings accounts that pay one per cent or more have halved over the last 12 months. Currently less than a third (140) of 659 savings accounts on the market can beat or match inflation.
“It’s hard to imagine that just one year ago 67 per cent of accounts in the savings market paid one per cent or more, compared to only 34 per cent doing so today, showing how cruel the past year alone has been on savers,” said Rachel Springall, finance expert at Moneyfacts.
“Consumers will need to be savvier than ever when moving their cash to find the best possible returns.”
Read more: High street savers set to lose money as inflation rises and rates stay low
“November’s inflation figures were pretty much as expected after October’s blip and look set to continue their upward trend,” said Danny Cox, chartered financial planner at Hargreaves Lansdown.
“I don’t think the Bank of England will change rates. There could possibly be a reversal of the last rate cut over the next 12 months but interest rates will not go back to one per cent for years.
“There’s no sign of returns improving for savers. People need to shop around to get a decent deal. It’s important to hold some cash but they could also look around for a better yield on their investments.”
The fund supermarket has previously suggested that savers consider lending via P2P platforms to get higher returns.
“P2P providers match lenders and borrowers to provide investors with attractive interest rate returns as an alternative to traditional gilt, corporate bond and fixed interest investments,” it said. “P2P is an investment, not a cash alternative, so is only for those who are happy to accept risk to their capital and interest.”
Read more: Why investments are the new savings
