Anna Macdonald, Investment Strategy Director, Hargreaves Lansdown: “UK inflation fell more than expected to 2.8% in April, below forecasts of 3%. Technical factors helped pull the number down – including changes to the Ofgem price cap and the timing of Easter. Even so, combined with a softening labour market, this gives the Bank of England a bit more breathing space.
It’s worth remembering that before the escalation in tensions between the US, Iran and Israel, investors had been expecting two rate cuts this year. Markets are now leaning towards the possibility of one or two rises instead. However, Bank of England Deputy Governor Sarah Breeden struck a more measured tone in the Financial Times this week, emphasising that the Bank’s role is to create a “stable environment” rather than act in a “trigger-happy” way. As she put it: “We don’t need to rush… we’re in a good place to be able to watch what’s happening in the economy.” Any progress towards a Middle East deal, however, will be critical in easing price pressures.”
What it means for retirees
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “The path for inflation looks uncertain and while we’ve seen a dip this month, there’s no telling what the future might hold. This can have huge impacts on pensioner budgets. State pensions are increased every year in line with the triple lock and final salary pensions also increase every year, but for those taking an income from a defined contribution pension managing inflation longer term is a key factor. This brings a dilemma for those on the hunt for a guaranteed income through an annuity -should they opt for a level annuity that doesn’t increase, or an inflation linked one that does?
The latest data from HL’s annuity search engine shows you can get up to £7,855 per year from a single life level annuity with a five-year guarantee. This compares to £5,940 per year from one that increases 3%. It’s a huge difference – the escalating one will increase but will take years to match the income of a level product. However, there’s always the concern that the level annuity’s purchasing power will be eroded over time. It’s a choice that needs careful consideration. There’s also the option of using both annuities and income drawdown for your retirement income. You can secure your essentials via an annuity while keeping the rest in drawdown where it has the opportunity for investment growth that can help maintain your purchasing power.”
What it means for savings
Clare Stinton, senior personal finance analyst, Hargreaves Lansdown: “Inflation has dropped 0.5% to 2.8% in the 12 months to April 2026. But don’t breathe a sigh of relief just yet - this doesn’t necessarily mean prices are falling, just that they are rising at a slower pace. Fuel costs remain a big upwards driver, although falling household energy bills the largest downward contributor helped offset some of the pressure after Ofgem lowered the energy price cap at the start of April. However, as Iran tensions continue to push up oil prices and impact global supply chains, household energy bills will likely rise again next quarter. The new price cap is announced next week and takes effect from 1 July.
Everyday essentials will be continuing to apply pressure to household budgets with food and non-alcoholic drinks rising by 3% from April 2025 to April 2026. Drivers will be feeling the squeeze at the fuel pump, with the average cost of petrol now 156.8p per litre, the highest since November 2022 – jumping up 16.6p per litre in just the last month.
These pressures mean it’s really important to get the most from our money. Interest rates on cash savings have been riding high for the last few months, and savers can still take advantage of inflation beating rates. Our calculations show that if you have £5,000 earning 2% interest, after five years it would grow to £5,525. But had you put it in a top-paying savings account where it was earning 4.5%, after five years it would be worth around £6,259. You can add hundreds of pounds to your bank balance by simply shopping around. Take a few minutes to check what level of interest your cash is earning, if it’s not competitive, it may be time to switch to get your money working harder.”
|
