Inflation rate sparks 'bad news for savers' – what will happen to interest rates?


    This was down from the 3.2 percent registered last month and comes as a surprise to many economists and analysts who predicted yet another increase to the UK’s rate of inflation. On a month-to-month basis, CPI in the UK rose by 0.3 percent in September 2021, compared with a rise of 0.4 percent in September 2020. This comes as good news for the Chancellor Rishi Sunak ahead of his Autumn Budget announcement next week, with the revised inflation rate likely to be a factor in any decision he makes.

    “And that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act.”

    However, now that the inflation has slightly dropped, it is unlikely interest rates will rise in any dramatic fashion, which some experts believe will be “bad for savers”.

    Simon Lister, an expert from the financial comparison website,, outlined why he believes this fall in inflation will hurt, rather than help, everyday savers,

    Mr Lister explained: “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. The Global Financial Crisis, Brexit and the COVID-19 pandemic have been the savings equivalent of an extinction event. To keep returns real right now there are few options other than to move up the risk curve.”

    Laith Khalaf, head of investment analysis at AJ Bell, agrees with the train of thought that an interest rate rise will be unlikely following this inflation update.

    Mr Khalaf said: “The dubious reliability of the data was one reason for the Bank of England to hold fire on interest rate rises, but recent rhetoric coming from the Bank suggests the energy crunch has prompted a reappraisal of the scale and duration of inflationary pressures.

    “The result is the market is now pencilling in an interest rate rise in November, though seeing as only a month ago the Bank’s interest rate committee voted unanimously to keep rates on hold, it could take a bit longer for the requisite number of doves to sheepishly convert into hawks.

    “This latest moderation in inflation will also pour cold water on the case for immediately tighter monetary policy.”

    Despite this prediction, Thomas Pugh, an economist at RSM UK, believes the financial markets and the wider public should wait and see how the country’s employment figures check out before writing off a hike on interest rates.

    Mr Pugh said: “Financial markets are pricing in a 90 percent chance that the MPC will hike interest rates in November, but markets have a terrible history of overestimating how quickly interest rates will rise.

    “Most MPC members will probably want to see how the end of the furlough scheme in September has impacted the labour market, which they won’t know until the December meeting.

    “If unemployment remains relatively steady in October then a rate hike in December is probable, but a raft of evidence that the economic recovery has stalled in the meantime may push the first rate hike back until early 2022.”

    According to the Bank of England’s overall forecast, inflation is expected to hit four percent by the end of 2021 as living costs rise over the winter months.

    Colin Dyer, Client Director at abrdn, outlined why the savers should not hold out hope for a savings boost resulting from an interest hike.

    Mr Dyer explained: “September’s slight inflation dip is not a reflection of the uncertain and uncomfortable period currently felt by many households.

    “Overall we believe there is continuing, short term upward pressure on inflation, including fuel, energy and food prices pushing prices higher.

    “In fact, the Bank of England is expecting inflation to exceed four percent before the end of the year – coinciding with what is already an expensive time for many.

    “That’s why 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.”

    The Bank of England is set to provide an update regarding interest rates following its Monetary Policy Committee (MPC) on November 4, 2021.

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