THERE was a little bit of good news for consumers and savers this week after it was revealed that inflation had unexpectedly fallen from 2.1 per cent in July to 1.7% in August.
Not only did the drop take the headline figure to its lowest level since December 2016, it brought it well within the Bank of England’s target of 2% too.
Mike Hardie, head of inflation at the Office for National Statistics, said the fall was driven mainly by a decrease in the price of computer games and the fact that the cost of clothing is rising at a slower rate than it was at the same time last year.
Though the cost of air fares was found to have gone up, the picture overall was a positive one for consumers and savers, particularly as the Bank of England’s Monetary Policy Committee voted again this week to keep interest rates steady at 0.75%. While that means money held in cash accounts will continue to achieve minimal growth, the drop in inflation means it will suffer less erosion.
Despite this, Rachel Springall of financial website Monyfacts said that the choices for anyone hoping to beat inflation are limited, with just two in 10 cash savings accounts offering interest rates equal to or in excess of 1.7%.
“The savings landscape is changing, and not for the better, as savers will find that a vast majority of savings accounts are being eroded by the power of inflation,” she said.
“There are no easy-access accounts that can beat 1.7% today, so savers will need to tie their money down to outpace inflation.”
According to Moneyfacts, the best cash rates currently available come from sharia-compliant providers Bank of London and the Middle East and Gatehouse Bank. However, while both are offering rates of 2.45% the former requires the cash to be tied up in a three-year bond while the latter’s comes on a five-year bond.
At 1.6% the best easy-access rate comes from Al Rayan Bank, which is also sharia complaint, while the best rate on a notice account comes from PCF Bank, which will pay 1.85% as long as savers are willing to wait 180 days to make withdrawals.
“Savers may not want to tie up their cash right now due to economic uncertainties, and findings from the Bank of England show a great disparity between the flow of money going into interest-bearing time deposits - fixed rates or those where savers must give notice to withdraw funds - compared to those that do not require the saver to give notice,” Ms Springall said.
“Indeed, between January and July 2019 £2.2 billion went into interest-bearing time deposits compared to £17.1bn for interest-bearing sight deposits [such as] easy-access accounts.
“Those consumers who would prefer to keep their cash close at hand within an easy access account would be wise to chase down the top rates due to some of these being reduced in recent weeks. With this in mind, it is more important than ever to keep on top of the changing savings market.”
For Adrian Lowcock, head of personal investing at investment platform Willis Owen, though, savers should consider looking at other options such as investments to give their cash a chance to grow.
“It’s good news for those investors holding cash, as it means the value of their money is holding up better than it was, but ultimately inflation remains well above the rates most of us can get on the high street via cash Isas,” he said.
“Savers should therefore take advantage of low inflation to invest in other asset classes where they can generate more money, especially as these readings can be very volatile - if the recent spike in the oil price persists we could see inflation return in the near future.”
While the best way to access investments is via a collective fund, Tom Rosser, investment research analyst at The Share Centre, pointed to a number of individual shares that he believes could produce positive returns for investors confident enough to take a DIY approach.
“Global information service supplier Experian has demonstrated robust earnings through all phases of the economic cycle and with a strong balance sheet it has further capacity for acquisitions and buybacks,” he said. “A 10-year annualised return of over 20% and the potential to benefit from a number of strong structural drivers puts it in an enviable position.
“JD has the ability to connect with youthful demographics and core footwear customers through deep data analysis of all product launches, something that most other retailers struggle to do. The quest for global scale makes it a preferred partner for the likes of Nike, Adidas and peers.
“Whilst its current valuation can look slightly expensive against historical figures, the group’s superior availability of fashion forward and exclusive products should help to meet growing consumer demand for leisurewear going forward.”
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