Inflation through the Consumer Prices Index (CPI) was announced as rising by 3.1 percent in the 12 months to September, down from the 3.2 percent in August. On a monthly basis, CPI increased 0.3 percent in September 2021, compared with a rise of 0.4 percent in September 2020. The data appears to show inflation may not be as out of control as it was originally predicted to be.
Laith Khalaf, head of investment analysis at AJ Bell, said: “The market is now expecting an interest rate hike by Christmas, largely thanks to the inflationary pressures which will inevitably follow the energy crisis, and some markedly hawkish rhetoric from the governor of the Bank of England.
“According to interest rate markets, there is now an 85 percent chance of a rate rise this year, and a 60 percent chance of a hike at the next MPC meeting in November.
“Markets are pricing in tighter policy because the energy crunch could prompt a dramatic U-turn on interest rate policy at the Bank of England.”
The Government-backed service MoneyHelper, has described rising inflation as a “big problem” for those with savings and investments in the current economic climate.
This is because rises can take a significant chunk out of the spending power of money being put away for the future.
For instance, if a person were to put money away in a one percent savings account, they would expect to receive one percent interest a year later.
However, if inflation is more than one percent, although a person has more money, it can purchase less than the amount they originally started with.
Therefore, if a person wishes to make money on their investment, they will need to find a savings account or investment which “beats inflation”.
The problem occurs, though, as the vast majority of accounts currently on offer are not offering, or even close to offering, inflation beating accounts.
MoneyHelper advises: “For short term goals where you plan to spend the money within five years it’s safer to go for a savings account and not worry too much about inflation. For long term goals you need to keep inflation in mind when you invest.”
Therefore, many savers could be pleased today by the lack of movement in inflation, and have their fingers crossed for a continual downward trend next month.
However, the idea of rising inflation is not yet off the table, as changes could occur throughout the rest of the year.
Annabelle Williams, personal finance expert at Nutmeg, said: “Britons have done a fantastic job of saving and investing their disposable income over the past 18 months. The pandemic has fundamentally altered how we look at money, and many people are taking their personal finances seriously. Those who can afford to should keep up the habit of topping up their savings and investments.
“Now would be a good time for people to take stock of where they are financially. Getting sorted money-wise for the coming winter is a good idea – some long, cold months are coming and it pays to be prepared.”
However, Simon Lister at InvestingReviews.co.uk was less than optimistic, and said: “This slight dip in inflation will not cheer savers, as inflation remains well above target and there are still many structural issues in the economy that could drive prices higher in the months ahead. There was growing talk that the Bank of England could raise interest rates before Christmas to contain inflation, but this is now slightly less likely, which is another hammer blow for Britain’s savers. For savers, it’s been a decade of despair.”
Colin Dyer, Client Director at abrdn, said: “Savers need to act now to ensure they are doing what they can to keep up with inflation rates and avoid their hard-earned cash taking a hit. While an interest rate rise could be on the horizon, it will have limited impact on the effectiveness of deposit returns, and savers should consider if they are comfortable to invest their assets, and accept a degree of investment risk, in order to secure longer term positive growth.”