Headline Inflation (CPI) falls to lowest level in almost 3 years

The latest figures from the Office for National Statistics (ONS) are out, and inflation, as measured by the Consumer Prices Index (CPI) has fallen to the lowest level in almost three years.

Headline inflation came in at 2.3% in the 12 months to April 2024, down from 3.2% the month before, while core inflation declined from 4.2% to 3.9% in the same period.  

The Bank of England has hinted that UK base rate, which has been raised in recent years to slow price rises, could be cut this summer. Base rate is currently at 5.25% - the highest level in 16 years.

Anna Bowes, Co-founder of Savings Champion says “The latest inflation data is out, and the current situation is a savers dream - interest rates have remained pretty stable, while the rising cost of living is slowing! As we know, while inflation may have fallen to 2.3% which is close to the government target, it doesn’t mean that prices are falling, it means that the rate at which costs are rising has slowed. And if you can find a savings account that is going to pay you more than the rate at which your cost of living is going up, that could mean extra pounds in your pockets.” 

Falling inflation does not mean the prices of goods and services overall are coming down, it just means that they are rising at a slower pace.

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time.  

Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising inflation rates directly affect the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.  

Beating inflation

Although inflation is falling, it’s important to remember that the prices of goods and services overall are still rising, just at a slower rate than before. For example, services inflation only declined by 0.1% in April, virtually unmoving against the headline inflation decrease. However, there are a number of simple ways that you can mitigate these differences.

“If you have your cash with a high street provider, you are particularly vulnerable. For example, the Barclays Everyday Saver account is paying just 1.66% on the first £10,000 deposited into that account, balances of over £10,000 will earn a diluted return as the amount over £10,000 will earn just 1.26% - well below inflation!  

In the meantime, you could earn up to 5% on the top paying easy access accounts and more if you are happy to tie some of your money up. The top 1-year bond is paying 5.21% whilst the top 5-year bond is paying 4.57%. Whilst the longer term, lower paying bonds look like a poorer proposition at the moment, it makes sense to think longer term too. What happens if interest rates fall sharply over the next few years? You might feel pretty pleased with yourself in a couple of years if you had locked at least some of your cash up for longer, hedging against inflation and interest rate cuts!” - Anna Bowes, Co-founder of Savings Champion. 

With headline inflation and interest rates uncertain, it’s more important than ever to make sure your finances are handled responsibly and with the right guidance. At TPO, we understand the stress surrounding the current economic climate. Our chartered financial advisers are unbiased and completely independent, meaning that they can give whole of market advice, and so are best placed to give you a plan tailored exactly to your personal financial goals.  

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The interest rates are correct as of 24th May 2024.