\n\t\t\t\t\tInflation is still well above the Bank of England’s target level – and is expected to rise further later this year\t\t\t\t\t <\/p>\n
Inflation<\/a> fell to 2.6 per cent in the year to March, according to figures released by the Office for National Statistics (ONS) on Wednesday.<\/p>\n The Consumer Prices Index (CPI) measure of inflation is still well above the Bank of England\u2019s <\/a>2 per cent target, though lower than the 2.8 per cent figure for the year to February<\/a>.<\/p>\n Closely watched services inflation \u2013 a key measure of underlying price pressures for Bank rate-setters \u2013 slowed from 5 per cent to 4.7 per cent. <\/p>\n It marks the lowest reading since December.<\/p>\n The fall was driven by a variety of factors including falling fuel prices and unchanged food costs when compared with prices seen last year. <\/p>\n Grant Fitzner, chief economist at the ONS, said: \u201cThe only significant offset came from the price of clothes, which rose strongly this month.\u201d<\/p>\n The Bank of England had forecast that inflation would fall to 2.7 per cent, as had most economists<\/a>.<\/p>\n But the headline inflation figure is set to rise next month and stay high for much of the rest of the year.<\/p>\n Pantheon Macroeconomics believes CPI for April \u2013 released next month \u2013 will rise to 3.6 per cent.<\/p>\n It then believes inflation could climb further, to 3.7 per cent by September.<\/p>\n Rachel Reeves <\/a>said: \u201cInflation falling for two months in a row, wages growing faster than prices and positive growth figures are encouraging signs that our Plan for Change is working, but there is more to be done.<\/p>\n \u201cI know many families are still struggling with the cost of living<\/a> and this is an anxious time because of a changing world.\u201d<\/p>\n What does it mean for interest rates?<\/p>\n Higher inflation means prices are rising quicker than otherwise, and this can prompt the Bank to keep interest rates <\/a>higher for longer.<\/p>\n Interest rates are currently at 4.5 per cent after being cut in February and held in March.<\/p>\n Even though inflation is still well above the Bank\u2019s 2 per cent target, there is an expectation that there will be further rate cuts later this year, with a reduction in May to 4.25 per cent considered quite probable.<\/p>\n This is partly because the economy is performing poorly, with only marginal growth forecast for 2025. Higher rates can weigh down on the economy further.<\/p>\n Donald Trump\u2019s tariff plans <\/a>have added further weight to the expectation that interest rates will be dropped.<\/p>\n Ruth Gregory, deputy chief UK economist at Capital Economics, said: \u201cThe dip in inflation won\u2019t be sustained for long, with inflation set to rise to around 3.5 per cent in the coming months.<\/p>\n \u201cBut we think a weak economy will quash inflation eventually and that the tariff shock has tilted the balance of risks towards lower inflation and faster falls in interest rates.\u201d<\/p>\n What does this mean for mortgages, savings and pensions?Mortgages<\/p>\n Mortgages<\/a> are not directly affected by inflation, although many products are affected by the Bank\u2019s base rate, which inflation influences.<\/p>\n Tracker products and standard variable mortgages change directly when interest rates change.<\/p>\n If interest rates rise as a result of increased inflation, mortgage holders on such deals will see their rates increase.<\/p>\n Fixed mortgage<\/a>s tend to work on long-term predictions for where the base rate will go. This means that a big drop in inflation can send mortgage rates down, because it can lead experts to believe the base rate will fall sooner rather than later.<\/p>\n Rates have been fluctuating in recent months but started to fall in recent weeks, as US tariffs led to expectations for speedier rate falls.<\/p>\n It is difficult to predict what could happen in the coming weeks, given the tariff situation is so volatile<\/a>, but the wider expectation is that rates will drop throughout the year.<\/p>\n Nick Mendes of brokers John Charcol said: \u201cThis will be welcome news for mortgage holders, particularly those on variable rates or nearing the end of a fixed deal.<\/p>\n \u201cFor mortgage borrowers, today\u2019s figure is certainly a positive development but it\u2019s too early to say the tide has turned.\u201d<\/p>\n Savings<\/p>\n High inflation is bad news for savers as it erodes the value of money held in the bank. Therefore, the lower the rate, the better the news for savers.<\/p>\n The effects of inflation on the Bank\u2019s interest rate also affects savers, because of the base rate\u2019s influence on savings rates.<\/p>\n Experts believe we are \u201cpast the peak\u201d for savings<\/a>, though there are some high rates that can still be snapped up, with Moneybox offering a cash ISA <\/a>that pays 5.03 per cent \u2013 but this is only available for three months and after this the rate drops.<\/p>\n The best one-year fixed rate is with Oxbury Bank offering a rate of 4.85 per cent.<\/p>\n Paul Went, head of savings at Shawbrook Bank, said: \u201cWith the Bank of England still likely to cut interest rates to support economic growth, savers may soon find returns edging lower. With the 2025-26 tax year now under way, savers should take advantage of their full ISA allowance, shielding up to \u00a320,000 from tax.\u201d<\/p>\n Pensions<\/p>\n Higher inflation can eat into pensioners<\/a>\u2019 savings.<\/p>\n Another factor to be aware of is the impact of inflation on annuity <\/a>rates.<\/p>\n Annuities offer a guaranteed annual income in retirement<\/a>. They offer an alternative to drawing down money from a pension pot<\/a>, which could eventually run out, particularly if a retiree lives longer than expected.<\/p>\n While they have been unpopular in recent years, rising interest rates have improved the annual incomes someone can buy.<\/p>\n But for retirees opting for one, time may be of the essence. With the Bank expected to cut interest rates, rates may fall.<\/p>\n","protected":false},"excerpt":{"rendered":"Inflation is still well above the Bank of England’s target level – and is expected to rise further…\n","protected":false},"author":2,"featured_media":33519,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[936,51,487,1700,474,476,478,2499,16,15],"class_list":{"0":"post-33518","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-bank-of-england","9":"tag-business","10":"tag-cost-of-living","11":"tag-economy","12":"tag-finance","13":"tag-inflation","14":"tag-interest-rates","15":"tag-personal-finance","16":"tag-uk","17":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114365883044262318","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/33518","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=33518"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/33518\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/33519"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=33518"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=33518"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=33518"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}