THE rising cost of motor fuels and food prices have helped to push UK inflation to its highest rate for more than two years, with the Consumer Prices Index rising to 1.8 per cent in January, up from 1.6 per cent in December, according to the Office for National Statistics.

The increase in inflation is bad news for savers, who are already struggling with low rates of interest.

Anna Bowes, director of independent savings advice site SavingsChampion, said: “The continued rise in inflation is a further blow to beleaguered savers and therefore it’s even more important than ever for them to switch to the best rates in order to at least mitigate the eroding effects.”

The average easy access rate is now a paltry 0.37 per cent and there were more than 2,000 rate cuts last year, with more in the pipeline.

NS&I, for example, is to chop the rates on a range of variable savings accounts from 1 May, with the rate on its Direct Saver set to fall from 0.8 per cent to 0.7 per cent. Savers with income bonds will suffer a cut of a quarter of a percentage point from one per cent to 0.75 per cent while the prize fund rate on premium bonds will also fall, from 1.25 per cent to 1.15 per cent.

Danny Cox, chartered financial planner at Hargreaves Lansdown, the financial adviser, said: “This cut in interest rates is another devastating blow for millions of savers. Ironically, with so little interest on cash for savers, premium bonds look more attractive – if your savings are basically returning nothing, you might as well opt for the chance of the jackpot prize.”

Cox added that high inflation and low interest rates could even tempt some people out of cash and into the stock market.

“Lower interest rates and rising inflation will test savers’ patience and I expect more people to look to the stock markets for some of their cash to improve their long-term returns,” he said.

The figures are certainly appealing. Tom Stevenson, investment director for personal investing at Fidelity International, said: “For anyone who is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share Index 20 years ago, you would now be left with £52,965.

“If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £19,916. That’s a difference of £33,049 – too big for any investor to ignore.”

But the stock market is risky – and there are no guarantees. Experts therefore advise savers to keep some money in cash in case of any emergencies and seek appropriate advice before dabbling in shares.

Cox said: “Equity income funds are a good starting point because they are at the lower end of the stock market risk scale. They invest in companies with good records of making profits and distributing these in the form of dividends.

“Investors who reinvest these dividends gain a powerful boost to their capital. CF Woodford Equity Income and Rathbone Income are good examples of equity income funds.”