🔔 ​Inflation falls but savings rates remain steady

Author: Anna Bowes
19th April 2024

The latest inflation figures are out, and the good news is that inflation, as measured by the Consumer Prices Index (CPI) has fallen to its lowest level in two and a half years.  The rate at which prices are rising fell to 3.2% in the 12 months to March, down from 3.4% the month before, according to the Office for National Statistics (ONS). But this is still slightly higher than experts were predicting.

The cost of living has been falling gradually for the last 18 months or so, since it hit the dizzy height of 11.1% in late 2022.  However, of course falling inflation does not mean that the costs of items are necessarily falling – it just means that overall prices are rising more slowly!

And according to Oxford Economics “Although UK CPI inflation fell again in March, the scale of the drop disappointed, with services inflation proving surprisingly sticky… it’s now touch and go whether inflation returns to the Bank of England’s 2% target in April”

Oxford Economics goes on to explain “The Monetary Policy Committee (MPC) has suggested it would need to see further progress in services inflation and pay growth before loosening policy. Today’s data effectively extinguishes any chance of a rate cut in May. We still think the first rate cut will come in June, but April’s pay and services inflation data will be key.”

The main drivers for this fall in inflation was a slowdown in price rises of many items of food, following unusually large rises in many of these items between February and March last year. Although in the food sector there are still items such as olive oil that are holding up the overall inflation price for food , there are other things such as meat, crumpets and chocolate biscuits that have actually fallen in price between February and March this year. Whatever the reason, it’s definitely a huge relief to see food inflation falling from an overall high of 19.1% in March 2023 to its current level of less than 4%.

But Grant Fitzner, chief economist for the ONS, said these lower costs were off-set by rising fuel prices last month. The average price of petrol rose by 2.6 pence per litre between February and March 2024 to stand at 144.8 pence per litre, although this is still lower than the price in March 2023, which was 146.8 pence per litre. Diesel prices rose by 2.8 pence per litre in March to stand at 154.1 pence per litre, but once again, down from 166.5 pence per litre in March 2023.

What does all this mean for the expectation of a cut in the Bank of England base rate?

The governor of the Bank of England, Andrew Bailey, said last week that the question for rate-setters at the Bank was how much more evidence was necessary before starting to cut interest rates in the coming months. However he also said that the path of inflation was broadly in line with what the bank has predicted. He still expects a sharp fall towards the government’s 2% target next month, especially with the likelihood of household energy bills falling in April due to a reduction in the energy price cap to a two year low of £1,960 for average dual fuel customers from 1 April to 30 June 2024. This is a significant fall from the previous cap of £1,928 and could even be followed by another cut in the summer.

But, Ian Stewart, chief economist at Deloitte, said that while inflation may be in "retreat", "the Bank of England cannot yet be sure that it is beaten".

With people's wage growth remaining above forecasts, "and the economy reviving, the Bank will be in no hurry to cut interest rates", he said.

So, once again we’ll have to wait and see.

In the meantime, there are more savings accounts than ever that are holding their own against inflation; even some non-ISA accounts are paying more that 3.2% after the deduction of basic rate tax!

So those who have already used their ISA allowance, could still beat inflation if they choose a top paying normal savings account.

Take a look at our best buy tables for the best rates on offer, tax free or otherwise!