Inflation rise to 2.5% ‘little comfort’ for savers

Written by Theo Andrew
16/08/2018

The Consumer Price Index (CPI) rate of inflation has risen to 2.5 per cent in July, up from 2.4 per cent in June, driven by volatile prices for computer games and rising transport costs.

According to the Office for National Statistics (ONS), it is the first time the CPI has risen since November 2017 when it hit 3 per cent.

The rise spells bad news for savers who will feel their take home pay squeezed even further.

Aegon head of pensions, Kate Smith, said: “Today’s figure of 2.5 per cent confirms an unwelcome return of rising inflation, marking the 18th month in a row that inflation has exceeded the government’s target of 2 per cent, and diminishing the overall spending power of households.

“There’s little comfort to be had for savers, who may have expected a welcome boost in their savings rate following the recent hike in the Bank of England base rate. However, with many banks and building societies failing to pass on the rate rise in full, many will be earning a lower rate of return than inflation, effectively losing money.”

Smith believes that now is the time for savers to make their money work harder to protect them against inflation.

Prudential retirement expert Vince Smith-Hughes added: “Rising prices have squeezed the incomes of pensioners and often the biggest concern for people living on a fixed income is how much they draw from their pension. Drawing too much income from their pension fund too quickly increases the chance that they prematurely exhaust their funds in retirement.”

Aviva head of savings and retirement, Alistair McQueen, commented: “Our economy is feeling wobbly. Consumer prices are rising; wages are stagnating; and house prices are weakening.

“Of all today’s data, it’s the weak house price data that stands out. In London in particular, house prices saw their largest annual fall since 2009. In Kensington & Chelsea house prices fell by a huge 10.5 per cent in the month of June – their biggest fall ever.”

Additional research from the ONS found that 47 per cent felt property was the most rewarding way to save for retirement, while 23 per cent chose pensions.

“Today’s data reminds us that house prices can fall as well as rise. It also reminds us of the risks of having all our investments in one (property) basket, and the value of spreading our investment risk via a pension.”

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