According to the latest figures from the Office for National Statistics (ONS), inflation as measured by the Consumer Prices Index (CPI) has slowed to 6.80% in the 12 months to July 2023, down from 7.90% in June. Good news yes? Perhaps, but experts have warned that we may not be out of the woods yet.
This is the second month in a row that the rate of inflation – so how quickly prices are rising - has fallen sharply and CPI is now at a 15 month low and down from a peak of 11.1% in October 2022. It has been driven in the main by a fall in energy costs, due to a new lower energy price cap which came into effect at the beginning of July 2023.
Food costs have also started to rise less quickly, including staple items such as bread, butter, milk and cereals. That said, overall food price rises are still seven times higher than a year ago at 15%, despite a significant fall from 17.5% in June.
Although on a monthly basis, CPI fell by 0.4% in July 2023 compared to a rise of 0.6% in July 2022, inflation in the UK is still far higher than in other countries and importantly, core inflation has not fallen at all. Core inflation excludes volatile items such as energy and food and therefore is a key statistic that the Bank of England considers when making its interest rate decisions.
The fact that core inflation has remained static despite overall inflation falling is a sign that higher prices are unfortunately still pretty sticky. The biggest concern is the pace at which wages are growing. The latest figures showed that wage inflation has increased by 7.8% in the three months to June, compared to the same period a year ago – this is the fastest rise since comparable records began in 2001 and higher than the overall rate of inflation.
Chancellor Jeremy Hunt said: "The decisive action we've taken to tackle inflation is working, and the rate now stands at its lowest level since February last year.
"But while price rises are slowing, we're not at the finish line. We must stick to our plan to halve inflation this year and get it back to the 2% target as soon as possible."
As a result, it is widely expected that the Bank of England will need to raise the base rate again in September at the next Monetary Policy Committee (MPC) meeting and that’s not likely to be the last hike. Following this latest inflation announcement, the markets now expect base rate to reach a high of 6%.
For savers, reducing inflation with ongoing base rate hikes is ideal. And as a result the gap between the current inflation rate and the top savings accounts has narrowed dramatically. In October 2022 when CPI inflation was 11.1% the top easy access account was paying just 2.80% and the top 1-year fixed rate bond was paying around 4.5%. Today, with inflation at 6.8%, the top easy access account is paying 5% and the top 1-year bond is 6.01%.
If you’ve not reviewed the interest you are earning on your savings accounts for a while, it could be time to see if you could be earning more – helping your cash to keep as close as possible to the rising cost of living, so that you are not losing your buying power.
Sign up for our weekly best buy tables to help you to keep an eye on the best rates.
@savingschampion
Find us on Facebook