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Peer2Peer Finance News | August 17, 2019

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Headache for savers as inflation soars to three-and-a-half year high

Headache for savers as inflation soars to three-and-a-half year high
Marc Shoffman

SAVERS will be feeling the pinch even more acutely as inflation rose to a three-and-a-half-year high last month, surpassing the Bank of England’s target.

Figures from the Office for National statistics showed that UK inflation rose to 2.3 per cent in February, up from 1.8 per cent in January, exceeding analyst forecasts of 2.1 per cent.

This is the first time that inflation has been calculated using the CPIH measure, that unlike CPI, takes into account owner-occupiers’ housing costs and council tax. It is not evident if one measure will be consistently higher than the other.

February’s increase means that only one out of 793 savings accounts on the market can now beat or match inflation, according to comparison website

Charlotte Nelson, finance expert at, said savings rates have been rising but inflation still bites in the mainstream market.

“Inflation is already a huge impact on savers’ interest, but as it is expected to rise further, times will be tough,” she said.

“With 48 per cent of the easy access market paying 0.25 per cent or less, there are better deals out there. But savers will need to work extra hard at keeping on top of the best buys to maximise their interest.”

In comparison, most peer-to-peer lenders continue to offer rates far above inflation, offering savers a better return, as Rhydian Lewis, chief executive of RateSetter explains.

“Inflation is now above the two per cent target and outstrips the average return on a savings account several times over,” he said.

“This might prompt more people to consider putting their money to work, by taking on some risk in order to earn a better return through peer to peer lending.”

Inflation has risen above the Bank of England’s two per cent target for the first time since November 2013, yet the base rate remains at its historic low of 0.25 per cent.

Above-target inflation will add to the case for an interest rate hike, but Howard Archer, chief European and UK economist for research firm IHS Market, predicts the Bank’s monetary policy committee (MPC) will still hold off.

“While the MPC will be far from happy with the February inflation data, we suspect that its temptation to raise interest rates will be tempered by mounting evidence of a slowing UK economy as consumers rein in their spending,” he said.

“The 29 March triggering of Article 50 may well also contribute to increasing business uncertainty.
“With slightly reduced confidence, we maintain the view that the Bank of England is highly likely to sit tight on interest rates through 2017 and 2018 – and very possibly beyond.”

Read more: Overcoming inflation

The government does not seem too concerned about inflation either, with the Treasury pointing to a strong economy.

“The Spring Budget set out plans to build a stronger, fairer economy by investing in skills, schools, social care and cutting-edge technology, while continuing to bring down the deficit and live within our means,” a Treasury spokesman said.

“The government appreciates that families are concerned about the cost of living, and that is why we are cutting tax for millions of working people, increasing the national living wage to £7.50 per hour from next month, and freezing fuel duty for the seventh year in a row.”

Read more: RateSetter: Savers prefer better returns to more protection