đź”” Why savers should make hay while the sun shines

Author: Anna Bowes
28th June 2024

It’s finally happened! UK inflation, as measured by the Consumer Prices Index (CPI) has hit the government’s 2% target for the first time in three years - and in line with forecasts. This headline rate is currently below that of the US and the Eurozone, but whilst this is good news, we can’t ignore the painful upsurge in inflation that we’ve experienced recently – the worst for a generation.

The latest stats from the Office for National Statistics show that CPI dropped from 2.3% in the 12 months to April, to 2% in May 2024. As a result, there are hundreds of savings accounts that are now paying more than inflation!

However, regardless of the headline figures, the Bank of England’s Monetary Policy Committee (MPC) was not reassured enough to cut the base rate – so it remains at 5.25%. Bad news for borrowers, but another reprieve for savers. And many economists think that a cut may not even happen at the next meeting on 1st August, as services and core inflation are still higher than hoped.

Services inflation - which covers sectors such as the hospitality industry - has only fallen from 5.9% in April to 5.7% in May. And core inflation which strips out food and energy, fell to 3.5 per cent in May, down from 3.9 per cent in April but still relatively high.

And CPI is expected to rise slightly in the second half of the year again as the decline in energy prices last year falls out of the annual comparison.  

In a comment made in the Financial Times, Tomasz Wieladek at T Rowe Price said “Headline inflation is at target, but the war on inflation isn’t won yet,” He added that price rises for services indicated that “inflation is not yet coming down in a sustainable fashion”.

Financial markets had previously priced in expectations of an interest rate cut in August - but following the latest inflation announcement, that shifted towards a reduction being made in September instead.

What has helped bring CPI down?

The main drivers for this latest fall in inflation was food once again, with prices actually falling month on month, after rising a year ago – but we have to remember that on average food prices are still 25% higher than they were at the beginning of 2022! And there are some items such as oils and fats, milk cheese and eggs which are still rising.

Other items that helped the inflation level to fall were the prices of non-alcoholic beverages and furniture. For car drivers however, fuel prices at the pump have increased a little.

What does all this mean for savers?

Quite simply, there are now far more savings accounts paying an interest rate that keeps up with and in fact beats the current cost of living – but there are also some that don’t. So make sure you don’t have cash languishing and losing value in real terms when you could switch and earn more.

Keep a close eye on our best buy tables and move your cash to help it to earn an interest rate that can beat inflation.