Kevin Brown, savings expert at financial mutual Scottish Friendly, says: “Inflation is on the rise again. July’s 13 per cent increase in the energy price cap means more of the impact of the conflict in the Middle East is now landing directly on UK household bills, with another increase expected in October. Yet energy may only be exerting part of the pinch this autumn. Expensive fuel and fertiliser are adding pressure to food production and supply chains, while an exceptionally hot summer raises another threat to harvests. As a result, families may continue to feel the inflationary fallout from this at the till as well as through their utility bills. The Bank of England is expected to hold rates in September, although it will have August’s inflation reading to consider before then. But with the majority of forecasts pointing to inflation remaining above its 2 per cent target into next year, policymakers face the perpetual balancing act of getting ahead of rising prices without choking off economic momentum. For households, that makes getting the most from every penny ever more important. Competitive savings rates can help cash work harder, while those with a greater appetite for risk and a longer-term horizon may want to consider investing for the potential to achieve returns that outpace inflation over time.”
Jenny Holt, Customer Savings & Investment Director at Standard Life said: “Inflation heading back up is an unwelcome reminder that the cost-of-living squeeze hasn’t gone away. The 13% increase in Ofgem’s energy price cap from July is feeding higher bills into household budgets, with the increase equivalent to around £18 a month for a typical household. With inflation at 2.9%, everyday costs are still rising faster than the Bank of England’s 2% target. Andy Burnham’s planned temporary removal of VAT from household electricity from October should provide some welcome relief, but it is likely to offset only part of the recent increase in energy costs. Prolonged hot and dry weather could also put further pressure on some food prices later in the year, meaning households may continue to feel the squeeze across several areas of everyday spending. When more of the monthly budget is absorbed by essentials such as energy and food, it can also become harder for people to put money aside, whether that's building emergency savings to cover unexpected costs or contributing towards longer-term goals like saving for retirement. Renewed inflationary pressure could also make the Bank of England more cautious on interest rates. While cooling wage growth may ease some of the pressure, a more persistent rise in prices could keep borrowing costs higher for longer. For savers, it is also an important reminder that the headline interest rate on savings only tells part of the story - what ultimately matters is the return they are earning after inflation. For people approaching or already in retirement, even relatively modest inflation can make a meaningful difference over time. Rising prices steadily reduce what a fixed level of income can buy, making it harder to balance today’s household costs with longer-term plans. Regularly reviewing retirement plans and considering how changing costs could affect the income needed in later life can help people understand whether their savings remain on track.”
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