March’s UK inflation figures suggest the six-year squeeze on real earnings is over, following the news that CPI inflation dropped to 1.6 per cent, the lowest seen since October 2009, a think-tank said.
Data for the Office for National Statistics revealed CPI inflation dropped 0.1 per cent in the month to March.
Samuel Tombs, UK economist at Capital Economics, said that since annual growth in average earnings was 1.7 per cent in January, “and has probably strengthened since”, consumers’ pay is finally rising again in real terms “on the CPI measure at least”.
The Ons said the biggest downward pressure on prices came from “transport, particularly motor fuels, with other smaller downward effects from the clothing and furniture and household goods sectors”.
Mr Tombs said: “It seems unlikely that the fall in inflation is due to the earlier timing of Easter last year (when prices for some goods such as airfares rise). The Ons recorded most prices in the middle of March last year, two weeks before the Easter weekend, so prices in March 2013 are unlikely to have been boosted by the holidays.
“Looking ahead, we continue to think that a combination of stable commodity prices, falling import prices and recovering productivity will push CPI inflation as low as 1 per cent before the year is out.
“This would provide more solid foundations for the recovery in consumer spending and enable the MPC to keep bank rate at 0.5 per cent until late 2015.”
Moneyfacts agreed that while it is positive news that inflation has fallen “adding fuel to the prospect of pay increases outstripping the cost of living”, savings accounts are not paying enough interest.
Sylvia Waycot, editor at Moneyfacts, said: “Today there are a total of 816 savings accounts on the market, but only 159 (71 fixed bond and 88 Isas) accounts that pay enough interest to negate the effects of tax and inflation.
“Today, the average easy access account pays 0.63 per cent as opposed to 0.77 per cent last year.
“Settling for a fixed bond today will give you a much lower return of interest compared to this time last year, the average two-year fixed rate bond paid 2.07 per cent, compared to 1.71 per cent today.”
“The average interest paid across the Isa range is just 1.59 per cent and a year ago it was 1.82 per cent.”
