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Peer2Peer Finance News | November 18, 2017

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Inflation drops but savers warned the squeeze will continue

Inflation drops but savers warned the squeeze will continue
Kathryn Gaw

THE COST of living fell for the first time since September 2016 as inflation hit 2.6 per cent in June, but it is still above the Bank of England’s two per cent target and close to a four-year high.

The consumer price index fell from 2.9 per cent in May, driven by a decline in fuel prices, recreation and cultural goods, but commentators warn inflation is generally on an upward trend so savers need to think carefully about where to put their money.

“Inflation may have dipped, but it’s generally on an upwards trend and there’s no escaping the fact that British households are continuing to feel the squeeze,” Martin Palmer, head of corporate market management at Zurich, said.

“There is still sustained pressure on households as the prices of goods remain high, while hard-earned savings are eroded.

“Against this backdrop, it is vital people review their spending and consider how to save. To make their money work harder, consumers need to look at options beyond cash accounts.”

Read more: Household savings rate hits record low

Dan Gandesha, chief executive of buy-to-let investment platform Property Partner, warned that while the data shows a slight improvement, savers are still hit by a “toxic mix” of high inflation and low interest rates.

“A cut in the CPI rate of 0.3 per cent on last month simply papers over the cracks, and savers and investors need to remember that CPI is still at 2.6 per cent,” he said.

“When you take into account the Bank of England’s warning, that any eventual rise in the base rate of interest will be extremely gradual, the short term prospects are not bright.”

Inflation is also hitting small firms, with the Federation of Small Businesses (FSB) urging the government to do more to help with rising costs.

Mike Cherry, national chairman of the trade body, is calling on the government to increase business rates by CPI rather than continuing to use the retail prices index measure, which is currently higher at 3.5 per cent.

“All over the country, firms are paying themselves less and further increasing prices in an attempt to manage inflationary pressure,” Cherry said.

“Small firms are still absorbing the shock of April’s delayed business rates revaluation. To add insult to injury, we had news last week of yet another delay to delivery of the hardship fund promised months ago to those worst affected.

“Confirmation in recent days that rates bills will rise in line with CPI rather than RPI from 2020 will go some way to supporting small firms that are struggling against sharp hikes in the future. Given that operating costs are now at their highest in four years, and against a backdrop of unprecedented political and economic uncertainty, help is needed in the here and now. It’s clear that this switch must be brought forward to 2018.”

Read more: How rising inflation will impact small businesses

Read more: Savers hit by “toxic combination” of low rates and rising inflation