Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “This further fall in inflation will inevitably accelerate speculation surrounding the Bank of England’s intentions for interest rates. So far it has persisted with high rates due to inflation remaining above target, and it looks like US interest rates, which often influence global rates, could remain high for quite some time. However, with UK growth struggling, unemployment increasing, wage growth cooling and this month’s energy price cap cut likely to push CPI even closer to the 2% target, this spring or summer could well be the time the Bank’s Monetary Policy Committee changes direction and reduces interest rates.
“A cut in interest rates is good news for borrowers, but less so for savers – many of whom will have enjoyed decent returns on their deposits after more than a decade of historically low rates. If the Bank does decide to move as early as May or June, the next few weeks could be the last chance to pick up easy-access savings deals hovering around 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 if inflation fell to the Bank of England’s target of 2%, someone with £10,000 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 we are getting ever-nearer to the Bank of England’s 2% target, strengthening the call for a first rate cut in the coming months. However, while inflation is moving in the right direction, last week’s US inflation data and the smaller-than-predicted declaration in UK wage growth may add some further caution with the Monetary Policy Committee (MPC) being wary of jumping too soon. The MPC will also want to see the impact of the national living wage increase, which will come through in next month’s inflation data. 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 edging closer to normality, but it remains slow progress.
“For savers and investors, any nudging down in inflation while interest rates and investment growth remain higher on the whole, means greater rewards over time.
“In the context of average wage rises, if this dynamic continues, this could mean people feel more able to build savings back up and boost overall household resilience once again.
“Pensioners have just received a boost to State Pension income of 8.5% as a result of April’s triple lock rise, so this should mean enough headroom for older people, especially those who are dependent on their State Pension for retirement income, keep on top of their bills.”
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