Savers continue to struggle
Inflation falls from 1% to 0.9% in October
Bank of England governor Mark Carney has warned of a sharp rise in the cost of living – despite the latest fall.
He told MPs on the Treasury select committee that rising inflation, together with the falling pound, will put pressure on retailers and manufacturers to raise their prices.
Inflation is expected to tick up in the coming months and could hit 3% next year.
Liz Cameron, Chief Executive of the Scottish Chambers of Commerce (pictured below) said: “The unexpected fall in the rate of inflation may be some respite for Christmas shoppers but retailers are telling us that they still expect the low value of the pound to translate into higher shop prices, particularly when the new season stock arrives.
“Whilst the Bank of England is expecting inflation to peak at less than 3%, the key will be the differential between prices and wage increases and what with might mean for consumer demand – a key factor in growing Scotland’s economy.
“That is why Chambers of Commerce will be looking for clear pro-business measures from the UK and Scottish Governments in the forthcoming UK Autumn Statement and Scottish Budget.
Financial experts said savers would continue to struggle in their attempts to find good returns.
Tom Stevenson, investment director for personal investing at Fidelity International, said: “Prices are still rising faster than at any time since late 2014. The rise in prices continue to be driven by sterling’s recent weakness which has raised the cost of imported fuel and food.
“Consumers can expect UK inflation to continue rising into next year as the impact of the pound’s slide continues to be felt. The conventional wisdom is that the Bank of England’s 2% inflation target will be left behind in 2017.
“Higher inflation means the pound in your pocket won’t stretch as far and many will be thinking how they can make their money work harder. There is little evidence so far that rising inflation will translate into higher interest rates, so anyone with savings still sitting in cash will struggle to generate real returns.
“To stand any chance of achieving an inflation-adjusted real return they’ll need to look further up the risk spectrum, investing in bonds issued by companies rather than the Government or moving into stocks and shares.
“Our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £55,219. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £20,027. That’s a difference of £35,129 – far too big for anyone to ignore.”
Calum Bennie, savings expert at Scottish Friendly, said: “The surprise fall in inflation for October to 0.9% is just a pause for breath.
“The Bank of England has repeatedly warned that inflation will spike as currency effects take hold, and with interest rates not looking likely to budge anytime soon, savers need to take action now and consider ways to make their money work harder.”
Data from Moneyfacts.co.uk reveals that rate reductions in the savings market have now outweighed rate rises for 13 consecutive months.
In October, Moneyfacts recorded 25 savings rate rises, with the number of rate decreases standing at 240 – which translates to around ten cuts to every rate rise – and some deals falling by as much as 0.90%.
Statistics released today show that the Consumer Prices Index (CPI) fell to 0.90% during October, but it still means that savers have very few accounts to choose from that match or beat it.
Today, less than half (255) of the 636 savings accounts currently on the market can beat or match inflation, and of these 238 (8 no notice, 14 notice, 156 fixed rate bonds and 60 cash ISAs) are without restrictive criteria.
Rachel Springall, Moneyfacts.co.uk said: “Savers will be frustrated to see inflation having such an impact on their hard-earned cash.
“Competitive rates are being removed from the market at such a swift pace due to demand, with 23 Best Buy deals completely withdrawn since the start of October with no replacement. Some deals only sat on the shelf for a few days, which shows how fast savers have to be to grab the top rates.
“It is expected for inflation to continue creeping above and beyond the Government’s 2% target and if that happens soon, savers are really going to be feeling the pinch. There is little to no incentive for providers to desire savers’ deposits, so those who rely on their savings interest as a form of income will need to brace themselves for difficult times ahead.”