A glimmer of hope for savers? But perhaps not for long!

25th May 2012

Another month and another surprise inflation figure. This time at least it’s good news, as long as you are a regular air or sea traveller anyway!

Figures from the Office for National Statistics released this week indicated that overall the annual rate of increase in the Consumer Prices Index fell to 3% in April 2012, down from 3.50% in March. For those of you who are more interested in the RPI - what many consider to be the more accurate measure of inflation - the rate of increase fell by a more modest amount - from 3.60% in March to 3.50% in April.

But when you drill down into it, is this news really as good as it sounds. Your personal rate of inflation may still be far higher.

A major factor in this latest CPI reduction was because sea and air fares rose by far less this year, compared to the previous year, as did the price of clothing and off licence sales of alcohol. Partially offsetting these were smaller upward pressures from the operation of personal transport equipment, (basically anything to do with how you get from A to B, except for walking!) restaurants & hotels and rents.

The RPI was affected by similar issues although housing and petrol and oil are also included in this index, which, as these were also upward pressure items, is perhaps the reason that the fall in RPI was far more modest.

But, just as we were beginning to look forward to some let up in the savings v inflation battle, the International Monetary Fund boss is now suggesting that the Bank of England base rate should be cut further!!  The last three years have been tortuous enough for savers, with interest rates languishing at just 0.50%.  And yet businesses still cannot borrow and mortgage rates are increasing! So how will dropping interest rates even further help?

The banks are still too worried to lend money so the danger is that savers will simply suffer even more. This is coupled with another suggestion that temporary tax cuts should also be featured, in order to help boost the economy, and the possible candidates are VAT and National Insurance contributions. Well obviously a cut in National Insurance contributions would help out those who are still working but it won’t help the pensioners who would be the worst hit by further cuts to savings rates but wouldn’t benefit from a cut to National Insurance!

It shouldn’t simply be about cutting the Bank of England base rate - instead of simply looking to cut the Bank of England Base Rate, perhaps the Government should be putting pressure on the banks to lend more at sensible rates. We often hear the expression “share the pain”, well savers have had their fair share.

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