Becky O’Connor, Director of Public Affairs at PensionBee, said: “This surprise increase shows that nothing can be taken for granted with the economy.
For those trying to put money away for the future, a rise in inflation makes it all the more important that they find the best savings rate possible. If investing for the long term, this rise highlights the benefits of investing for growth, to preserve the real value of money in years to come and protect it against long-run inflation.
Anyone relying on the state pension or a fixed rate annuity may feel dismay that the expected further decline in inflation has not yet materialised. They are still waiting for a clear sense of relief.”
Simon Kew, Head of Market Engagement at leading independent consultancy Broadstone, said: “After a significant decline to 3.9% in November, inflation surprisingly edged back upwards again to 4.0% in December.
“It marks the first rise in inflation since February but further falls are anticipated with some economists even predicting inflation to drop below the Bank of England’s target of 2% in the first half of 2024 earlier this week. In spite of the rise in December, inflation is still projected to weaken over the course of the year, stoking predictions of rate cuts despite the Bank of England’s public pushbacks against these market expectations.
“For pension schemes, the faster than expected fall in inflation over the past six months could reduce the scrutiny on discretionary increases as member benefits are more likely to keep pace with the cost of living.
“After consecutive bumper increases to the State Pension, retirees without Defined Benefit pensions often take a keen interest in the inflation print to see whether it could drive another significant Triple Lock uprating. But with inflation looking to be coming under control, this group should instead be keeping tabs on the earnings figure over the coming months.”
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “With January cheer in short supply, the impact of inflation moving further from the Bank of England’s 2% target will come as a blow to struggling households. It had seemed that the squeeze on people’s finances had been slightly loosening, with lower inflation forecast and one of the UK’s largest lenders yesterday lowering their mortgage rates in anticipation of the Bank of England potentially lowering the base rate soon. However, we might now have to wait slightly longer for the pressure to ease.
“Hopefully this month’s figure is a blip, and we’ll see the forecasted fall in inflation soon. For those who are able to save, now’s still a good time to shop around for best-buy accounts. If the Bank of England do decide to lower interest rates, it’s likely some of today’s inflation-busting deals will disappear. People are famously loyal to their bank, but people can now switch bank with the click of a button, often with a financial incentive to do so and 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.”
Danny Vassiliades, Partner at XPS Pensions Group, commented: “This time last year, CPI inflation stood at 10.5% and the Bank of England was in the middle of 14 consecutive interest rate rises in a bid to control it. Whilst CPI remains above the Bank’s 2% target rate, today’s announcement shows what a difference a year can make.
While we are watching the unfolding situation in the Red Sea and considering potential inflationary impacts of this carefully, some forecasts are suggesting that CPI inflation could hit the Bank’s 2% target by mid-2024. In this scenario, many pension increase limits will not apply, to the benefit of pension scheme members.”
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