The latest figures are in and they continue to make grim reading. Inflation, as measured by the Consumer Prices Index (CPI) had come down a little in the 12 months to March 2023 compared to February, but on average prices are still rising by 10.1%, according to the Office for National Statistics (ONS). CPI was at 10.4% in the 12 months to February.
Although this is going in the right direction, inflation continues to be higher than anticipated. It was widely expected to fall back into single figures in February and then again in March but this hasn’t been the case.
And once again it is the price of food that is one of the key drivers keeping inflation at this painful level – overall rising by 19.1% over the last year. Much of this was the increasing cost of bread and cereals where prices rose by the highest annual rate on record.
And, as former Chief Economist at the Bank of England, Andy Haldane, stated, “The effects of the tightening so far haven’t been fully felt”. What he means by this is that the Bank of England base rate rises which have seen mortgage rates rise, have not yet been felt by many home owners, as they are still on fixed rate mortgages. That pain is yet to come as these fixed rate terms come to an end.
That said, Haldane is predicting that inflation will start to fall sharply in the next few months. He said “You fast forward six months and the headline inflation rate will not be double digits. It might be 3, 4 or 5 [per cent],”
There is also possibly light at the end of the tunnel for an easing in the eyewatering price rises of food, according to the chief executive of Sainsbury’s. In an article in the Evening Standard, Simon Roberts is reported to have suggested that fresh food prices may be past the worst although it will be months before it will be clear if grocery inflation as a whole has peaked.
What does this mean for savings rates?
More persistent higher inflation has led the financial markets to predict that the base rate could be hiked to 5% by the Autumn and there is an 88% chance that the interest rate will be increased to 4.50% at the next Monetary Policy Committee (MPC) meeting in May. That said, some economists think that a rise in May could actually be the last in the current cycle.
Haldane agrees that it could be time to take stock. He said “If you’re raising the cost of borrowing as well as the cost of living, that compounds the agony. I’m not sure right now whether businesses as well as households are ready for the double whammy of those two things. So, personally, I’d be thinking hard about pausing,”
In the meantime, the expectation of higher interest rates has seen another surge in competition in the fixed term bond market and the best buy shorter term rates in particular are higher that they were in the aftermath of the mini budget last year, as our latest Rates Rundown details.
And variable rate accounts are also continuing to surge – with the top easy access account now paying 3.65% - the highest rate we’ve seen in Savings Champion’s history!
As a result, now could be a great time to grab a top rate while this burst of competition is rife.
@savingschampion
Find us on Facebook