Savings warning as inflation rate tumbles
Inflation has fallen to its lowest level for nearly four years after energy tariffs eased back and as the coronavirus crisis saw fuel costs tumble and clothing retailers trim prices.
The key rate of consumer price inflation fell to 0.8 per cent last month, marking the lowest level since August 2016 and down sharply on the 1.5 per cent recorded in March, according to official statistics.
The rate is now well below the Bank of England’s 2 per cent target, while it is set to drop sharply lower still, with some economists predicting that the headline rate of inflation could fall close to zero by the summer.
Bank of England deputy governor Ben Broadbent recently said it was possible that inflation could fall into deflationary territory, below zero, by the end of 2020.
Kevin Brown, savings specialist at Scottish Friendly, said: “Who would have thought the new Bank of England governor Andrew Bailey would have to write a letter to the Chancellor explaining why inflation was more than one percentage point away from the target this early in his tenure?
“That is the world we are now living in. Whatever the content of that letter from Mr Bailey to Rishi Sunak, these low inflation figures are a false signal for savers. It will mean more people now have inflation-beating rates of return on their savings, however treating this situation as the new normal is not the best course of action.
“The crisis will pass and the economy will open back up. This could quite conceivably lead to a spike in inflation.”