New figures have shown the rate of inflation dropped sharply last month.
The data released today by the Office for National Statistics (ONS), shows the rate of inflation in October slowed dramatically to 2.2%, from 2.7% in the previous month.
The sharp fall takes the rate of inflation to its lowest level for a year and will allow the Bank of England, who is targeted to keep inflation at 2%, a small sigh of relief.
The main reason for the substantial drop was the falling cost of transport, which fell by 1.5% over the past month. In addition, the cost of education and food also fell.
The Retail Prices Index (RPI) also dropped by 0.6%, from 3.2% in September to 2.6% in October.
Relief for savers?
Those people, particularly pensioners, who are on fixed incomes, will be grateful for today’s news. Although, no one shouldn’t get too excited; recent rises in energy prices, which are yet to feed through to the official figures, could soon mean last month’s fall is reversed.
The fall in the rate of inflation, even if it is only temporary, is also excellent news for hard pressed savers. Most of whom have struggled to find ‘real returns,’ as interest rates have been cut on even the best buy savings accounts.
Cash ISA savers For the first time in a while Cash ISA investors have instant access options, from the Coventry and Vernon Building Societies, which current rates, provide an inflation beating return.
None taxpayers People who don’t pay tax now have a far wider choice of accounts which beat inflation. They now only need to tie up their capital for two years, although five year fixed rate bonds and longer term, seven year fixed rates, still provide the best rates of interest.
20% taxpayers For basic rate taxpayers, depositing a lump sum, the choice is more restricted. Only Secure Trust Bank and Shawbrook Bank offer rates which beat inflation and even then your cash has to be tied up for five years.
40% & 45% taxpayers Unfortunately for those people who pay higher rate tax, there are still no accounts which pay an inflation beating rate of interest. Only time will tell if inflation will fall far enough, or god forbid interest rates actually rise, for higher rate taxpayers to achieve a ‘real return’ on their savings.