Cost of living steadies
Inflation rate for March remains unchanged
Figures for March are often affected by Easter trading but as it falls in April this year it has depressed any uplift in March’s inflation number.
CPI inflation has been rising steeply, from just 0.3% a year ago and expected to hit 3% this year.
Shoppers have responded by reducing their spending in early 2017 as retail sales rose at the slowest pace since the depths of the global financial crisis.
Total sales edged up by just 0.1% between January and March compared with the same three months of last year, the British Retail Consortium said.
That was the weakest growth since the three months to December 2008.
Data from Moneyfacts reveals that the savings market is showing encouraging signs of improvement. The number of rate rises now outweighs the number of reductions for the third month running.
In March, Moneyfacts recorded 163 savings rate rises, with some rates increased by as much as 1.20%. This dwarfs the 65 rate reductions that took place in the same period. As a result, the average five-year fixed rate has now risen to levels not seen since August 2016, reaching 1.81%.
Despite the boost to savings rates there are still very few accounts to choose from that match or beat inflation. Only one out of the 740 savings accounts currently on the market can beat inflation, with this five-year fixed rate bond fortunately without restrictive criteria.
Rachel Springall, finance expert at Moneyfacts.co.uk said: “Savers are likely asking themselves whether it’s still considered ‘saving’ if they are in fact losing money because of the inflation bite.
“As it stands, there is only one standard savings account that can outpace the current level of inflation, which means most accounts on offer today are effectively paying negative interest rates due to the inflation erosion.
“It’s true that providers are not technically charging customers to hold their deposits, but if the interest rate is not outpacing inflation, the spending power of that cash will be eroded over time.
“As a result, there is likely to be very little incentive for savers to take out a savings account right now. This is particularly true when you consider that the high street banks can pay up to 5% on their current accounts, though these typically have restrictive criteria.”
Richard Theo, CEO at Wealthify, said: “The UK is in the midst of a silent savings crisis. Approximately £6.8bn is disappearing annually from the nation’s 63 million easy access cash savings accounts. That’s the equivalent of taking almost £95 out of each saver’s pocket every year.
“Yet most people are none the wiser. Our research shows that despite the majority (78%) of people saying they understand the value of their cash savings can fall, most savers (71%) still expect the value to rise year in year out. Wishful thinking unless they are one of the lucky few to enjoy an interest rate above inflation.
“British savers are not being given fair warning of the effects of inflation. In fact, 81% of savers argue that banks should be required to issue warnings on real term potential losses on cash savings, to prevent them being blindsided by rocketing inflation.”
Liz Cameron (right), chief executive of Scottish Chambers of Commerce, said: “Inflation now looks set to remain above the 2% target for some time to come as higher fuel costs and rising import costs feed through into the economy.
“As a result, the Bank of England will come under renewed pressure from some quarters to raise interest rates but we believe that, given current economic conditions, this would be premature.
“Scotland’s economy is contracting and growth in the UK economy is expected to slow this year. This means that a supportive business environment needs to be maintained, with the UK and Scottish Governments taking whatever action is necessary to reduce the cost burden on businesses.
“The continued weakness in sterling may be positive news for exporters but it is beginning to track through into rising costs for manufacturers and retailers and this is resulting in higher costs for consumers. It may be time for the UK Government to look again at rates of VAT, with a view to providing a boost to consumer demand at a crucial time for the economy.”