Inflation: Savers struggle as inflation rate remains unchanged


Savers struggle as inflation rate remains unchangedFigures from the Office for National Statistics (ONS), released yesterday, showed that the Consumer Prices Index (CPI) remained unchanged in January at 2.7%.

The ONS reported that rises in the price of alcohol and tobacco were offset by decreases in the cost of clothing and footwear.

It was the fourth month in a row that CPI has remained unchanged, the longest period without an increase or decrease since 1996; however the Retail Prices Index (RPI) which includes the cost of mortgage interest did rise from 3.1% in December to 3.3% in January.

Speaking to the BBC, Phil Gooding from the ONS said, “We know that not all the rises in utility prices have yet entered the index. There’s still some more to come which will have an upward effect on inflation.”

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Gooding continued: “We also have to watch out for oil prices, these have been falling for four or five months but in January they started to rise again.”

“On the other hand, we know of a number of large stores closing or at least going into administration over the last couple of months, so there are pressures on certain parts of the High Street which could have a downward effect.”

Savers struggle

The news that inflation has remained unchanged was a further blow to savers, who have been hit hard by recent interest rate falls, following the introduction of the government’s Funding for Lending Scheme (FLS).

The FLS gives banks and building societies who sign up, access to cheap finance, which they then have to lend on to individuals and businesses. The interest rate on the FLS is set at just 0.25%, which means banks and building societies need less money from savers and can therefore reduce the interest rates they pay.

As a result, whilst interest rates on mortgages and personal loans have fallen to all time low levels the return on savings accounts, including fixed rate Cash ISAs has plummeted over the past few months, so far in fact, that for tax-payers, there are no longer any accounts which pay a rate of interest above inflation.

To beat inflation a 20% tax-payer would need a gross interest rate of 3.375%, whilst a 40% tax-payer would need 4.50%; neither of which is currently possible.

Cash ISA (Individual Savings Account) investors and non-tax payers can still just about beat inflation, but the options are limited.

With inflation expected to rise during 2013, the situation will get worse for savers, who will have to either accept that the real value of their savings will be eroded or look for alternatives, which of course will generally involve a higher degree of risk.

We have previously looked at alternative ways of getting your savings to beat inflation, you can read this article by clicking here.

Our team of Independent Financial Advisers in Nottingham are experienced in advising investors on their cash options, if you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email