Alistair Wilson, Head of Retail Platform Strategy at Zurich: “Inflation is creeping up again, pushing up the cost of living. This, coupled with low wage growth, the rise in interest rates making mortgage and loan repayments more expensive, and Sterling continuing to fluctuate, is squeezing household incomes left right and centre. The rate rise would have come as welcome news, particularly for those relying on the interest to supplement their income, but savers shouldn’t get carried away. The current best instant access savings account offers a rate of 1.4%, so the base rate would need to rise by at least 0.9% to help savers beat inflation. And even so, it could take months before banks actually pass the benefits on.
“It’s important savers reflect on where they invest to help combat the impact of rising prices, and look at other options to help their money grow. Feeding a small amount each month into a stocks and shares ISA or a pension fund is a sensible way to build a healthy sum over the years, while also protecting your savings as you go.”
Giles Cross, CEO of FOLK2FOLK: “As inflation rises to 2.5%, and despite this month’s interest rate rise, the squeeze on UK households isn’t over. The dual impact of inflation and low interest rates means consumers will continue to see next to nothing on their hard earned money and disposable income will continue to feel stretched. Consumer’s shouldn’t be misled into thinking that this month’s rate rise will make much of a difference to their money. As it stands, the large majority haven’t passed on the 0.25% and it could take months before people actually benefit.
“As such, consumers will need to look beyond traditional saving methods if they want their money to work harder and beat inflation. The investment landscape has evolved in recent years with the extension of ISA limits and the introduction of new products. By allowing P2P lending platforms to be part of the ISA wrapper, those wanting a positive return on their money can now benefit from inflation beating returns with less volatility than stocks and shares.”
Vince Smith-Hughes, retirement expert at Prudential: “Rising prices have squeezed the incomes of pensioners and often the biggest concern for people living on a fixed income is how much they draw from their pension. Drawing too much income from their pension fund too quickly increases the chance that they prematurely exhaust their funds in retirement.”
Jonathan Chitty, Investment Analyst at Brown Shipley: “The July Consumer Price Index (CPI) was in-line with median forecasts and flat on the previous month.
“Rising prices for computer games and transport fares produced the largest upward contribution, and the July Retail Price Index, used to determine the maximum increase in rail fares next year – clearly a topical issue at the moment – rose by 3.2%, down from 3.4% last month and slightly below expectations.
“The largest downward contributions come from falls in the price of clothing and footwear, as well as the removal of initial charges associated with some investment products.
“The Bank of England faces a difficult task in managing the need to promote economic growth against the backdrop of Brexit-based uncertainty with the requirement to keep inflation below 2%. On balance we consider that last month’s unanimous decision to raise rates by 0.25% was the right one.
“Interest rate changes take some time to affect consumer prices, however, and it is perhaps unsurprising that markets do not expect another hike until the third quarter of 2019.”
