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Peer2Peer Finance News | May 29, 2017

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Savers urged to look for cash alternatives as inflation hits new high

Savers urged to look for cash alternatives as inflation hits new high
Marc Shoffman

SAVERS are being urged to “wake up and smell the coffee” as inflation hit a 43-month high of 2.7 per cent in April.

Consumer price inflation is at the highest rate since September 2013, boosted by higher air fares, energy and clothing prices, which is way above the Bank of England’s two per cent target.

The figure is also far higher than the average easy access cash saving rate of 0.37 per cent.

Read more: SMEs feel the pinch as inflation soars

Richard Theo, chief executive of robo-investment service Wealthify, says this ought to be the “final straw” for savers.

“It’s high-time savers woke up and smelled the coffee – cash savings accounts are no longer adequate for generating good long-term growth and people need to consider alternative ways to grow their money,” he said.

“Inflation is now the highest it has been since 2013 and steady rises since Brexit last June show no signs of slowing down any time soon.

“At today’s inflation rate of 2.7 per cent, and with average cash savings returns at around 0.37 per cent, inflation is now effectively taking £130 from the average cash saver’s pocket every year, in real terms and yet most are none the wiser. With 63 million cash savings accounts held in the UK today, it amounts to a silent savings crisis unravelling across the country.”

Read more: Overcoming inflation

The figures were described as “sobering” by Rhydian Lewis, chief executive of RateSetter.

“With interest rates on the high street at historic lows, this surge in inflation further reduces the value of cash savings,” he said.

“That’s a sobering thought – and it’s no wonder that we’re seeing more and more people considering investments which carry risk, such as peer-to-peer lending, in order to put their money to work.”

This may well not be the peak though, as Howard Archer, IHS Markit’s chief European and UK economist warns.

“Inflation was pushed up in April by Easter-related price hikes that occurred in March last year, and it could edge back in May, but it is highly unlikely to have peaked yet,” he said.

“Indeed, we believe inflation is likely to get up to three per cent later on this year and then hover around this level for a while, although we have trimmed the expected peak in inflation from 3.3 per cent due to a recent firming in sterling and some softening in oil prices.”

However, he predicted the Bank of England would still steer clear from interest rate rises over the next couple of years.

Read more: It’s the economy stupid