The announcement by the Bank of England that inflation has fallen to 4.2 per cent is welcome news for the UK economy, however the announcement marks the 18th consecutive month where inflation has been higher than the Bank of England’s target of two per cent. High living costs continue to be a problem for UK households, especially those trying to put money aside or protect the value of their existing savings pots.
A poll run by moneysupermarket.com asked customers whether high inflation has affected their savings habits and reveals just one in five consumers (18 per cent) have not felt the impact.
A quarter of respondents (25 per cent) claimed they can no longer afford to save as the cost of living has increased, highlighting just how much of a squeeze rising costs are having on household budgets. A further 15 per cent of those surveyed don’t save anything now, a figure that has risen from nine per cent in April 2011. The poll also revealed almost one in five (18.6 per cent) save less than they used to and 10 per cent are now paying off more debt due to inflation.
High inflation is also having a negative effect on existing savings pots. To beat inflation, basic rate tax payers need an account paying at least 5.26 per cent to gain benefit in real terms from their savings, increasing to 7.01 per cent for higher rate tax payers and a staggering 8.41 per cent for top rate tax payers. No UK savings accounts pay enough to offset the eroding effects of inflation.
Kevin Mountford, head of banking at moneysupermarket.com said: “Whilst this drop can only be seen as good news, inflation is still running at very high levels and when combined with a static Bank of England Base Rate this represents a very real problem for UK’s consumers, particularly those trying to save. For those with existing savings, protecting their pots should be a priority as inflation will be slowly eating away at the value of their money. For others, the ability to save is being hampered by rising cost of living leading to a significant fall in disposable income.
“Finding a product that beats inflation is almost impossible, however it is still important to check your savings rate, shop around and be prepared to switch. Even if they can’t beat inflation, the difference between the average and top paying rates is considerable, so switching to a better deal can help savers limit the impact on their pots.
“Clearly the majority of consumers are finding it tough to free up any money to put aside and with factor like energy price hikes, the cost price of fuel and pay freezes for many workers, this situation seems set to continue. However, regular saving is still extremely important and many people will be surprised by how much cash they can free up by simply sitting down and reviewing their finances. Every penny counts at the moment so looking at day-to-day spending as well as bigger commitments, such as heating, insurance and financial products are really important.”
Source : Moneysupermarket.com