Inf lation rise means savers lose cash with official bond
INFLATION has surged to its highest level in almost three and a half years hitting household budgets and hard-pressed savers.
The Consumer Prices Index rose from 1.8 per cent in January to 2.3 per cent last month.
It has not been at that level since September 2013 and stands above the Bank of England’s 2 per cent target for the first time since November 2013.
The inflation surge means that savers have no chance of securing real-terms returns.
Around two million people hoping to invest in a government-backed bond will lose money when inflation is taken into account.
Philip Hammond claimed the National Savings & Investments scheme to be launched in April
‘Double blow to households’
would help those who have endured years of rock bottom interest rates. It will pay 2.2 per cent on deposits worth up to £3,000 – providing you lock the money away for three years.
But, according to analysis from Moneyfacts, someone who invests £3,000 for the full term will now be £9.42 worse off if inflation remains at 2.3 per cent.
The bigger than expected jump in the cost of living was driven mainly by rising fuel costs caused by higher oil prices. Food prices recorded their first annual increase for more than 30 months, standing 0.3 per cent higher in February than a year earlier.
This was driven by the fall in the value of the pound following the Brexit vote, which has driven up the cost of imports.
The Office for National Statistics, which announced the figures yesterday, noted that the severe weather in Southern Europe had caused large spikes in the price of some vegetables. The cost of an iceberg lettuce soared by 62.7 per cent from January and February.
ONS deputy national statistician Jonathan Athow said: ‘Inflation has risen to its highest rate for almost three and a half years with price increases seen across a range of items but with food and fuel having the largest impact.’ Economists warned the surge in prices would trigger a pay squeeze for millions of households as prices rise faster than wages.
Figures published by the ONS last week showed wages were rising by 2.2 per cent.
The TUC claimed the Government was ‘sleepwalking into another living standards crisis’ as working households face ‘the double blow of rising prices and slower wage growth’.
Economists predict that inflation will continue to rise, potentially exceeding 3 per cent by the end of the year.
None of the 793 savings accounts on offer in the UK now pays more the inflation although one sharia account, catering for Muslim customers, pays 2.3 per cent. Baron- ess Ros Altmann, a leading consumer campaigner and former pensions minister, led pleas for the Bank of England to increase interest rates which have been kept at emergency lows for eight years.
‘The new national savings bond that is supposed to offer respite for savers will actually cause them to lose money – what kind of respite is that?’ she said. ‘How can the Bank of England justify keeping rates on the floor when inflation is taking off like this? I would urge the central bank to wake up and recognise the dangers of keeping rates so low for so long – damage it is doing to savers and problems it is causing across the country.’
Baroness Altmann pointed out that interest rates were rising in the US. She added: ‘With growth stronger than expected, unemployment low and inflation picking up what is the excuse? This policy is undermining savers, encouraging more debt. Inflation is the friend of borrowers and the enemy of savers.’
Only one member of the Bank of England’s nine-strong monetary policy committee – Kristin Forbes – voted to raise interest rates from their current level of 0.25 per cent in their latest monthly meeting. She warned that inflation was ‘rising quickly and was likely to remain above target for at least three years’.
The Bank predicts inflation will peak at 2.8 per cent in the first half of next year before starting to fall.