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- CPI inflation held at the Bank of England target of 2% in June.
- Prices rose at 2% – their slowest rate in nearly three years.
- Hotel prices rose strongly and price increases in services continued unexpectedly.
- But second-hand car costs and clothes prices fell. The cost of raw materials and goods leaving factories also fell.
- What it means for interest rates.
- What it means for savings.
- What it means for annuities.
The ONS has released inflation figures for June: Consumer price inflation, UK – Office for National Statistics
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“Inflation figures released this morning show the Consumer Prices Index holding at 2% for the second month in succession. The headline figure will be welcomed in Downing Street, but the Bank of England is likely to be concerned that the pace of inflation in Services remains stubbornly high at 5.7%, also unchanged on the month. Services inflation had been predicted to fall this month and its failure to do so could well leave the Bank’s rate-setting Monetary Policy Committee wary of making any early reductions in UK rates. Traders had been pricing in a 43% chance of a cut in August; that is now likely to be pushed further back, suggesting good news for savers, but more pain for mortgage holders who may have to wait longer to see their monthly payments start to ease.”
What it means for savings
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
“With inflation staying at 2% and coming in slightly ahead of expectations it’s a perfect scenario for savers. This will still ensure that the Bank of England decision in August is finely balanced, which means the savings market should remain relatively steady, as it has done all year. Both easy access rates and fixed terms have started to creep up in July, driven by intense competition at the top of the market which savers should be taking full advantage of. Savers are consistently getting above double the rate of inflation returns and this increases the attractiveness of holding cash in your portfolio.
There are still multiple fixed and easy access rates across the savings market that offer returns in excess of 5%. As we get closer to a base rate cut, I’d expect to see the easy access market move much more swiftly, however the recent increase in competition at the top of the market could present a pleasant surprise as savers are presented with some very attractive products for that little bit longer over the summer months”
What it means for annuities
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“Inflation has held steady at 2% providing much needed respite to pensioner budgets. However, even though it has fallen back massively it remains an important issue that needs to be factored into people’s retirement planning.
Level annuities offer higher starting incomes than their inflation linked counterparts though a product linked to prices will grow over time whereas a level one won’t. The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,217 per year from a level single life annuity with a five-year guarantee. One linked to RPI on the other hand offers up to £4,543 as a starting income.”
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