Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “After several months of falling inflation we’ve now seen 2024’s first rise in CPI, with energy prices falling less than they did last year. Which has played a part in moving the figure back above the Bank of England’s 2% target. This could lead to the Bank taking a more cautious approach on further interest rate cuts following their move to slash the cost of borrowing from 5.25% to 5% on 1st August, which would be good news for savers but less welcome for people with mortgages or unsecured debt like credit cards balances to pay off.
“As a result, there’s a chance we could see some of the best easy-access savings deals sticking around a while longer. However, it’s still worth shopping around for the best deal now as the Bank of England expects inflation to fall next year, which could result in quicker moves to reduce interest rates. It’s also worth mortgage holders coming to the end of fixed rate deals keeping a close eye on new deals coming to the market, if they’re thinking of refixing.
“When looking for the best savings deal, people with a greater appetite for risk could consider investing into a product like a stocks and shares ISA which has greater potential for substantial returns. People able to take a long-term view could consider topping up their pension, increasing the potential for a build-up of compound investment growth over the years and taking advantage of pensions tax efficiency.”
Nicholas Hyett, Investment Manager, Wealth Club: "Economists had expected a bit of an inflationary heatwave over the summer, as the effects of lower food and energy prices started to drop out of the numbers and core inflation continued to run hot.
In the event, the inflationary heat has picked up a bit, but not quite to the degree that had been feared.
Crucially core inflation continues to fall steadily and is now at its lowest level since September 2021. It's this number which is key to the long term outlook for the UK and which will drive Bank of England interest rate decisions. All economies are buffeted by global commodity prices, it's domesticely generated inflation that policy makers focus on.
Services inflation remains higher than you might like, at 5.2%, although did fall thanks mainly to a substantial fall in hotel costs year-on-year. As a labour intensive industry, hotel prices can be a bit of a bellwether for the wider labour market - so softness here, coming after lower wage growth yesterday, will be reassuring. The Bank is probably feeling pretty pleased about the timing of its first rate cut at the moment.
Lily Megson, Policy Director at My Pension Expert, said: “A small uptick in inflation certainly isn’t great news after the long journey back to target levels, but it isn’t devastating either. Critically, it should serve as a reminder that we are not yet out of the woods. Until inflation stabilises, things will be challenging for Britain’s retirees and those planning their retirement – particularly following years of their savings facing a walloping from high inflation.
“So, what needs to be done? Frankly, the onus is on our new government to ensure that savers are given the help and support they need to make well-informed financial decisions, even in times of uncertainty. In practice, that looks like enabling access to financial advice, as well as education and guidance on savings and investments.”
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