Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “This is the first significant fall in inflation we’ve seen for a few months and the news will come as a huge relief to households, hopefully bringing some much needed springtime positivity after what’s been another hard winter. With the energy price cap set to fall from the 1st April too, we’re hopefully on a trajectory to a less challenging set of economic conditions. As we move closer to the Bank of England’s 2% inflation target, there will undoubtedly be a resurgence of speculation around when they’ll move to cut the base interest rate, lowering the cost of borrowing but reducing returns on savings.
“For those who are able to save, now’s a good time to shop around for best-buy accounts. If the Bank of England do decide to lower interest rates soon, it’s likely some of today’s inflation-busting deals will disappear. People are famously loyal to their bank, but securing the best possible rate really can make a difference over a couple of years – our analysis found that if inflation fell to the Bank of England’s target of 2%, someone with £10,000 to save who grabbed a 5% interest deal could see their savings worth £10,588 in real terms after two years. However, someone with the same amount to save who missed the best offers and picked up a 3% deal would have £400 less after two years (£10,189).
“For those with a greater appetite for risk, investing offers a greater chance of substantial returns, but there’s always the chance of losing money too. People able to take a long-term view could consider saving into a pension, which offers both the benefits of investing and tax efficiency.”
Steve Matthews, Investment Director, Liquidity at Canada Life Asset Management: “After today’s decrease in inflation data, attention now turns to the Bank of England committee’s remaining two hawks - Jonathan Haskel and Catherine Mann - who voted for a rate hike in February. The fall to 3.4% might alleviate some concerns, leading Haskel or Mann to shift to hold at tomorrow’s committee meeting and signalling that a June cut could be on the cards. They will, however, still be wary of the 9.8% National Living Wage rise coming into force in April and the potential of this feeding inflation. Our view remains that a first cut of 25bps in August is still the most likely scenario.”
Becky O’Connor, Director of Public Affairs at PensionBee, said: “Inflation is heading back down to more normal levels quickly and while 3.4% is historically on the high side, in the context of the extreme highs we’ve been living with, it’s a positive sign.
“For pension savers and other long-term investors, real returns are back on the table. The prospect of beating inflation with either stock market growth or interest rates on savings accounts is now broadly achievable, having been difficult over recent months.
“Pensions are long-term investments designed to beat inflation over many years, even if there are some volatile times along the way. The recent period of exceptionally high prices, coupled with unreliable investment growth, has been a worrying time for those trying to build future financial security as well as those in retirement already. An improved inflationary outlook, together with expectations of decent returns, will be a relief.”
|
