Savings squeeze slows as inflation finally falls
SAVERS and households received some slight relief this morning as inflation fell for the first time since June, due to a slower increase in air fares, food and clothes.
The cost of living dropped to three per cent in December, from a six-year high of 3.1 per cent the previous month.
The ever-rising cost of living was having an impact on the type of returns savers could get on their money, but at three per cent, inflation is still far above the Bank of England’s two per cent target, boosted by a weaker pound following the Brexit vote.
However, the Bank is confident that inflation will return to its target level later this year.
Read more: Strain on households persists as inflation holds steady
Matthew Brittain, investment analyst at wealth manager Sanlam UK, said that the current level of inflation should not be cause for concern.
“Today’s inflation figure simply reflects the fact that businesses that sell imported goods are passing on higher import prices, brought about by the fall in sterling to their customers,” he said.
As sterling has now recovered two thirds of its value in the aftermath of Brexit, Brittain expects inflation to fall back to two per cent in the coming months.
Samantha Seaton, chief executive of financial app Moneyhub, warned that recent price hikes have placed pressure on households due to stagnant wages.
“This tricky combination will leave many people with difficult spending decisions to make, in an even more challenging saving environment,” she said.
Seaton also encouraged consumers to use platforms to keep an eye on spending, to help secure better mortgage and credit card rates.
Nancy Curtin, chief investment officer at Close Brothers Asset Management, reflected that consumers would “breathe a sigh of relief” that escalating living costs are starting to subside.
However, she added that household finances will continue to feel tight until wages pick up in real terms, and predicted this will rein in the consumer spending that is so vital to our service-led economy.
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