SAVERS have been hit with a new blow as the rate of inflation increased for the first time since November 2017.
Figures from the Office for National Statistics (ONS) showed the consumer prices index had increased to 2.5 per cent after remaining at 2.4 per cent for the previous three months.
The cost of living measure had previously been falling from a high of 3.1 per cent and the jump will dissipate any excitement from the interest rate rise by the Bank of England last week.
Read more: Cash ISA savers left £4bn short by inflation
Mainstream banks have been expected to increase interest on their savings accounts due to the base rate being higher, although few are yet to make changes.
The higher rate of inflation will make it even harder to find a deal that is in line with the base rate and keeps up with the cost of living.
Simon Longfellow, head of guidance website stepstoinvesting.com said the combination of low rates and high inflation was harming the buying power of savers.
“After this month’s rate rise, it’s no surprise inflation has increased to 2.5 per cent,” he said.
“While savers might breathe a sigh of relief, they shouldn’t be fooled into thinking they’ll see a much of a difference to their savings.
“As such, savers need to be aware of other options to make the most of their money. A combination of low rates and high inflation meant UK savers saw the buying power of their money fall by £30.3bn in 2017 alone.”
Despite mainstream banks and building societies offering paltry rates, P2P products are still beating both the base rate and inflation.
“As inflation rises to 2.5 per cent, and despite this month’s interest rate rise, the squeeze on UK households isn’t over,” Giles Cross, chief executive of business P2P lender Folk2Folk, said.
“The dual impact of inflation and low interest rates means consumers will continue to see next to nothing on their hard-earned money and disposable income will continue to feel stretched.
“As such, consumers will need to look beyond traditional saving methods if they want their money to work harder and beat inflation. The investment landscape has evolved in recent years with the extension of ISA limits and the introduction of new products.
“By allowing P2P lending platforms to be part of the ISA wrapper, those wanting a positive return on their money can now benefit from inflation beating returns with less volatility than stocks and shares.”