22 Dec 2024

Specialist UK Mortgages...

Bank base rate increase the only trigger to beat inflation

Inflation figures released today show that the Consumer Price Index (CPI) has fallen to 3.10%, a marginal fall of 0.10% from the previous month but still way above the Government’s 2% target.

Hopes of any longer term reductions may be stunted when we see the implementation of the VAT increase early next year and speculation that that petrol prices are soon to spiral.

To stop their savings pot effectively eroding away, a basic rate tax payer needs to find an account paying 3.88%, while a higher rate tax payer needs to find an account offering 5.17%.

Basic rate tax payers have access to 87 accounts, but some of the higher returns still require an existing riskier longer term investment product at the same time.

Savers hardest hit by the rise in inflation are those who rely on their savings to supplement their income, many of whom are pensioners. The average savings pot of a basic rate tax payer is in effect being eroded by 2.51% per year.

Homeowners are experiencing a zero percent inflation on their mortgage repayments as RPIX, which excludes mortgage interest, remains the same as RPI, which includes mortgage interest.

Darren Cook, spokesperson for Moneyfacts.co.uk, commented:

“Inflation is a stealthy enemy for savers and when rates are low, it quietly erodes the spending power of a hard earned nest egg.

“Savers may have had a short respite from a marginal fall in inflation, but savings rates have hit a plateau and may be there for a while.

“The average one year fixed bond rate has fallen from 3.07% in January to only 2.54% today and the average five year fixed bond rate has fallen from 4.56% to 4.08% for the same period.

“The average instant access savings rate is still at rock bottom at a rate of only 0.74%. The only trigger for any improvement in savings rates may be a surprise increase in the Base rate by the Bank of England, but this is most likely not to happen soon.

“To just break even, higher rate tax payers need to find an account paying 5.17%, a level that is nigh on impossible to achieve.

“Only 87 out of a possible 1,244 accounts allow a basic rate tax payer to just break even at 3.88%. 51 ISA accounts beat inflation at 3.10%.

“It is difficult for savers to try and beat inflation but at best, they should try and stay within an arms length and try and weather the storm of low rates and high inflation.”

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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