Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “Despite an expectation that inflation would stay put at 2.6% or even rise slightly higher in December, CPI has fallen to 2.5% in what will come as some relief to the Government amidst rising borrowing costs and a falling pound. However, it’s still above the 2% target and some economists predict it will rise again before it falls, perhaps hitting 3% in the spring. All eyes will now be on the Bank ahead of February’s interest rate decision – several forecasters have maintained their prediction of around three rate cuts in 2025, but as price rises seem sticky we’re likely to see a cautious approach this year. Borrowers and mortgage holders will be frustrated if interest rates stay higher than expected for longer, but it could mean an extended opportunity for savers to benefit easy-access cash savings deals just below or even at 5%. People are famously loyal to their bank, but securing the best possible savings rate really can make a difference over a couple of years – our analysis found that with inflation at 3%, someone with £10,000 who grabbed a 5% interest deal could see their savings worth £10,373 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 only have £9,982 in real terms after two years. 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.”
Lily Megson, Policy Director at My Pension Expert, said: “Britons will be pleased to hear that the year has started with a surprise drop in inflation. However, let’s not lose sight of the bigger picture. Prices remain stubbornly high, and for many households, the financial strain from the past few years continues to weigh heavily. What’s clear is that people need more than temporary relief. Britons need clear leadership and support to navigate these tricky waters. Soundbites and wishful promises simply aren’t enough to help people manage and, indeed, future-proof their finances. Long-term, impactful initiatives like prioritising financial education, promoting engagement with financial planning, and providing access to independent financial advice should all be at the top of the agenda for the government in 2025 to help people weather whatever storm comes their way.”
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