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Worrying times for savers as inflation continues to rise Go compare with our comparison table

Worrying times for savers as inflation continues to rise

23 August 2011 / by Oliver Roylance-Smith

These are worrying times for savers as the UK consumer price inflation (CPI) rose to 4.4% in July. We take a look at the contributing factors and the real impact this is having on savers.

Headwinds grow stronger by the day

Earlier this month, Sir Mervyn King, governor of the Bank of England, was forced to write his seventh successive letter to George Osborne, Chancellor, explaining why inflation was so much higher than the Bank’s 2 per cent target.

He explained: “there are a number of headwinds to world and domestic growth and these are becoming stronger by the day”, suggesting that this increase on the previous month is merely the calm before the storm.

Return to normality nowhere in sight

"Inflation has been pushed up by rises in energy prices and import prices, as well as the increase in the standard rate of VAT" he continued, adding that inflation was likely to rise further over the next months. Mr King's comments seem to confirm that inflation is well on its way to reach 5% or more later this year, perhaps as early as next month.

Although he went on to say that from around the turn of the year it should begin to fall back, this was tempered by his staement that ‘the timing and extent of the fallback of inflation are highly uncertain’. Worrying times indeed.

Savers need help …

More worrying still is that consumer prices have increased at a faster rate than wages, thereby reducing the real value of household incomes. Over 50’s are hit the highest because they spend a greater proportion of their income on goods and services like fuel and food, which are rising ahead well ahead of headline inflation rate.

All of this is further compounded by continued low interest rates, with the Bank of England previously hinting that it could keep interest rates on hold for at least 18 months because of weak economic growth. This has a particular impact on those who require the interest from their savings to supplement their income.

Savers need all the help they can get and it is more important now than ever before to make sure the savings accounts and investments you have stack up …

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