🔔 Inflation sticks at 4% - proving forecasters wrong again!

As the winds of economic uncertainty continue to blow, savers across the UK continue to face a formidable foe, in the guise of inflation remaining relentlessly sticky. That said, there was a little bit of Valentine’s cheer on Wednesday (14th February), as the latest inflation figures from the Office for National Statistics (ONS) for the 12 months to January 2024 revealed that the Consumer Prices Index (CPI) rate had remained at 4%, less than expected.  

Inflation represents the rate at which the general level of prices for goods and services is rising, and a 4% increase in the cost of living, whilst far lower than it has been, is still double the government target of 2%.

Commenting on the surprise hold of the rate of inflation ONS chief economist Grant Fitzner said: "Inflation was unchanged in January, reflecting counteracting effects within the basket of goods and services.

"The price of gas and electricity rose at a higher rate than this time last year due to the increase in the energy price cap, while the cost of second-hand cars went up for the first time since May. 

"Offsetting these, prices of furniture and household goods decreased by more than a year ago and food prices fell on the month for the first time in over two years.

"All of these factors combined resulted in no change to the headline rate this month."

Where is inflation heading?

Experts are still suggesting that inflation is on a downward trajectory and is expected to hit the 2% target in the not too distant future.

The Bank of England's own forecasts show a return to the 2.0% target by April, but persistent inflationary pressures elsewhere in the price basket mean a rebound in CPI inflation over subsequent months.

The Bank sees UK inflation closer to 3.0% by year-end, making it reticent on the need to cut interest rates anytime soon.

The Bank’s governor, Andrew Bailey said that inflation remaining at 4% as we start 2024 “pretty much leaves us where we were”

However, the markets have increased bets that the first cut will come in June this year. They are pricing in a 0.25% cut in June as a 70% probability, up from 40% before the inflation figures were released.

So, what strategies can savers employ to mitigate the impact of inflation on their hard-earned funds?

There are still plenty of savings accounts available that are paying more than even the current level of inflation, although those who are fully utilising their Personal Savings Allowance have far fewer options outside of an ISA. But that doesn’t mean there aren’t account still available. The top 1-year bond is currently paying 5.21%, which is 4.17% after basic rate tax is deducted – still higher than inflation at its current level.

Another tactic is diversification. By spreading savings across different asset classes such as stocks, bonds, and real estate, savers can potentially hedge against inflationary pressures. However, it's crucial to assess individual risk tolerance and seek professional advice when venturing into more complex investment vehicles.

Our sister company, Chartered Independent Financial adviser TPO is still offering those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our colleagues, worth £500. You can find out more here.

In conclusion, with UK inflation still stubbornly remining at double the government’s target as we start 2024, this serves as a timely reminder of the importance of proactive financial management. Savers must remain vigilant in seeking out competitive savings options, exploring diversification strategies, and staying informed about economic developments. By taking a proactive and informed approach, savers can navigate the currents of inflation and strive towards their long-term financial goals.