Inflation surges to highest level in four years
BRITAIN’S cost of living is rising at its fastest pace in four years, official figures show.
Office for National Statistics (ONS) data shows a 2.9 per cent rise in the Consumer Prices Index last month – up from 2.7 per cent in April and the highest inflation rate since June 2013.
Economists had been expecting inflation to remain at 2.7 per cent but the rising cost of foreign holidays, toys and computer games drove an increase. The ONS also reported higher prices for furniture and household goods.
Imported goods have become more expensive as the pound has fallen since the Brexit vote in June 2016.
Calum Bennie, savings expert at Scottish Friendly, said: “The seemingly perpetual squeeze on UK households continues.
“The rise in inflation means no end is in sight for hard-pressed consumers who see prices rising but growth in their wages failing to keep pace.
“It is no surprise that consumers are reining back spending.”
HARD-PRESSED savers are being urged to resist apathy and keep shopping around for a higher return as inflation climbs yet again.
Interest rates may be stuck at alltime lows, but with a little effort you can make your money work harder.
Experts are urging savers to move on as the latest figures show consumer price inflation at a fouryear high of 2.9 per cent in the year to May, ahead of the Bank of England’s 2 per cent target for the fourth month in a row.
Inflation is currently rising faster than expected, up from 2.6 per cent in April and 2.3 per cent in March, with more expected as the pound weakens further after the election and pushes up the price of imported goods.
Andrew Tully, pensions technical director at Retirement Advantage, says pensioners on fixed incomes are particularly hard hit by rising prices: “If inflation averaged 2 per cent over 20 years the typical retired household would somehow need to find a further £187 a week simply to maintain their standard of living.”
MOVE ON
Although savings rates have picked up slightly of late, none of the 750 standard savings accounts on the market now beats inflation, according to Moneyfacts.co.uk.
Rachel Springall, finance expert at the site, says there were 95 savings rate rises in May, against 60 rate reductions: “While it is positive to see a greater number of savings rate rises, inflation is more of a threat and rates are still low.”
She says you must not let apathy rob you of finding a better deal. “Someone with £20,000 in a NatWest Instant Saver would earn just £2 over a year, but they could earn £222 with Charter Savings Bank’s top easy access deal, which currently pays 1.11 per cent.”
You will have to be quick as these days rates do not last for long. Springall adds: “Challenger banks offer the best rates, but they can also change their range much faster than other brands. A good recent example was Ford Money’s regular saver paying 4 per cent, which was withdrawn after just one day.”
She says the best rates are now mostly found online in a blow for people who still prefer to open a branch-based account (see page 38 for the latest best buys).
MAINTAINING INTEREST
High-interest current accounts are another option paying rates of up to 4 per cent, but only on limited sums. Nationwide’s FlexDirect pays 5 per cent on balances of up to £2,500, provided you fund the account by paying in at least £1,000 a month.
TSB’s Classic Plus current account rewards new customers with a £130 switching fee, if you go via MoneySavingExpert.com or MoneySupermarket.com, plus up to £120 in cashback, a total of £250 in the first year. TSB also pays 3 per cent on credit balances up to £1,500, with no monthly fee.
The Bank of England has previously suggested that inflation would peak at 3 per cent towards the end of this year, but last month’s increase suggests that prices are rising faster than anticipated.
Michael Baxter, economics commentator at The Share Centre, says the Bank is unlikely to respond by increasing interest rates, squeezing savers and workers on stagnating incomes: “The rise in the cost of living is starting to hurt consumers.”
Nick Dixon, investment director at Aegon, warned against rushing into stock markets, which have performed well, but now look overvalued, while bond yields are also low. “This limits the options available to generate above-inflation returns. Diversification continues to be the most considered long-term approach,” he adds.
That means spreading your money among cash, bonds, shares and other assets, such as property, to reduce volatility.
Low savings rates are destroying the retirement plans of many, so do not let apathy do the rest.