Rising inflation is set to wipe out any gains made from last week’s base rate hike, creating more misery for savers.
According to new figures from the Office of National Statistics, the rate of inflation rose to 2.5 per cent in July, up from 2.4 per cent in June. This effectively cancels out almost half of the gains which would have been netted by savers from the Bank of England’s decision to raise the base rate by 0.25 per cent.
Savers will now have to find a savings account which pays at least 2.5 per cent in interest in order to ensure that their money doesn’t lose value in real terms.
“Today’s figure of 2.5 per cent confirms an unwelcome return of rising inflation, marking the 18th month in row that inflation has exceeded the Government’s target of two per cent, and diminishing the overall spending power of households,” said Kate Smith, head of pensions at Aegon. “There’s little comfort to be had for savers, who may have expected a welcome boost in their savings rate following the recent hike in the Bank of England base rate.
“However, with many banks and building societies failing to pass on the rate rise in full, many will be earning a lower rate of return than inflation, effectively losing money.
“Now is the time for those people to think long term and make their money work harder. Doing this boosts people’s savings, protects them against the ravages of inflation and helps savings last longer.”
Meanwhile, pensioners have been warned not to draw too much income from their pensions while the cost of living is rising.
“Rising prices have squeezed the incomes of pensioners and often the biggest concern for people living on a fixed income is how much they draw from their pension,” said Vince Smith-Hughes, retirement expert at Prudential. “Drawing too much income from their pension fund too quickly increases the chance that they prematurely exhaust their funds in retirement.”
Also published on Medium.