Sarah Coles, head of personal finance, Hargreaves Lansdown: “Like an inattentive driver in rush hour traffic, inflation has hit the brakes again, falling to 2.6% in March. But the rough ride isn’t over. Once the price rises of Awful April kick in, we can expect it to accelerate sharply again. The Bank of England has forecast that it’ll hit around 3.75% in the third quarter of 2025. But with Trump’s tariffs driving the future of the global economy, we can’t be completely certain what direction we’re heading in and how fast we’re likely to go.
What it means for rates
In normal times, the threat of rising prices in the coming months would raise expectations that the Bank of England might hold rates for a while, until inflation was under control – but there’s nothing normal about this period.
The global economic turmoil caused by Trump’s tariffs mean it’s difficult to predict exactly where inflation is going to take us in the near future. However, prices are unlikely to be the Bank’s overriding concern at the moment, because looming potential tariffs have set off a cacophony of alarm bells over global growth. Central banks around the world will be keen to keep rates as low as possible to help support any possible growth. As a result, the markets are pricing in three or four more rate cuts from the Bank of England this year – with the first expected in May.
Of course, given the current US Administration’s unpredictable policy-making, none of this is nailed on. It means when anyone is making decisions about saving or borrowing, while they will want to have one eye on likely rate movements, the key will be to focus on their own needs, and what will be right for them regardless of what happens in the wider world.
What’s moving prices?
Hotel prices rose more slowly than the same time a year earlier. This is partly because costs for these businesses were rising more slowly, and partly because the dismal weather didn’t help persuade people to leave their homes, let alone go away for the night. Recreation and culture also sent inflation lower. This can be variable, because it includes things like the best-selling video games, so can fluctuate just because a cheaper title is selling well. Games, toys and hobbies were part of the picture. However, there was also a cut in the price of data processing equipment, compared to a rise a year earlier.
Petrol prices steered prices lower too. The average price of both diesel and petrol fell 1.6 pence per litre during the month, as concerns about the global economy depressed the oil price and brought savings at the pumps. Wholesale prices fell even further, but retailers weren’t falling over themselves to pass the full saving onto drivers. On the flipside, the cost of clothes rose, compared to a fall in the same period a year earlier. This is partly a reversal of the trend we saw a month earlier, and reflects the fact that discounting came earlier in the season to encourage people to refresh their wardrobes despite the weather.
The price rises of Awful April are poised to start feeding through into the figures next month, which will send inflation higher. The energy price cap will rise £111 to £1,849, while water bills will be up £123 on average, and council tax up an average of £109. Regardless of how this emerges in the official figures, it’s already squeezing household budgets harder.
What this means for savings
Savings rates have done an impressive job of hanging on, with the most competitive fixed rate deals across all periods sticking above 4.5%, and a few easy access accounts closer to 5%. The easy access cash ISA market is a particular stand-out, with a number of deals above 5%. However, this is unlikely to last much longer. Average rates have moved very fractionally south over the past month, and if the market continues to expect more cuts, this is likely to continue. We’re also expecting easy access rates to fall further than fixed rates – so we’ll be back to a more normal savings market, where you’re rewarded more for tying your money up. Anyone who opted for an easy access account for cash they won’t need for the next year or so might consider shifting into a fixed rate deal while rates are still so strong.
With higher inflation threatening, it always raises the spectre of whether your savings can stay ahead of inflation. However, you can currently get up to 4.65% fixed for the next year, which means inflation could rise significantly and you’d still be one step ahead. The difference between competitive rates and those available on the high street remains striking, with some of the giants offering less than 4% for a one-year fixed rate deal. It means it’s well worth shopping around with online banks and cash savings platforms rather than just sticking with your usual bank.
What this means for mortgages
The Trump tariff turmoil has already started feeding through into lower rates, as the mortgage market tends to move faster than savings. Moneyfacts figures show the average two-year deal is now 5.27% - compared to a month ago when it was 5.33% and a month earlier when it was 5.42%. There are super-competitive deals around below 4% now, which is a world away from the rates we’ve seen in recent years.”
What this means for annuities
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Inflation has fallen again but the expectation is that from here it will start to rise. We might not see it reach the highs of the recent past, but it shows the difficulties faced by people on a budget trying to make their money last when costs get higher. Those in the market for a guaranteed income face some tricky choices. We’ve seen incomes for single life level annuities soar in recent years. The most recent data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,685 per year from a single life level annuity with a five-year guarantee. However, this income won’t rise from this level.
You can get inflation-linked products, but the starting income is much lower – one that rises by 3% per year is currently offering £5,605 per year. Retirees need to think carefully about what choice is in their best interests. The inflation-linked product will rise but it could take many years before it reaches the amount offered by the level product. The prospect of looming inflation also brings the chance of further interest rate cuts, and these could bring further decreases in annuity incomes. It’s already been a bumper period for annuities, but this could be enough to make others who have been mulling the prospect take the plunge.”
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