FTA Vantage Point: Interest Rates  

No rate relief for savers amid warnings RPI could hit 10%

No rate relief for savers amid warnings RPI could hit 10%
Photo: Nataliya Vaitkevich via Pexels

A 10 per cent RPI print cannot be 'ruled out', experts have warned, putting more pressure on consumers as their savings still fail to price in bank base rate rises.

Market commentators and economists, such as Robert Wood, UK economist for Bank of America Merrill Lynch (MLI UK) have described the latest inflation data as being akin to Everest Base Camp IV - "It's a long way up but there is more to come".

As reported by FTAdviser, the latest data showed a 5.5 per cent increase in the CPI for January 2022, and 7.8 per cent increase in the RPI.

However, James Lynch, fixed income manager at Aegon Asset Management, warned the UK could see 7.4 per cent CPI and maybe even a 10 per cent RPI as we head into April.

He said: “2022 seems to have been billed as the year of a cost-of-living crisis, and it starts with another inflation print that once again is higher than expected at 5.5 per cent CPI for January 2022 and a whopping 7.8 per cent on the old RPI measure."

Analysis from Canada Life has stated this change in inflation leaves UK households collectively needing to find an extra £42.7bn a year to maintain their standard of living compared to 12 months ago.

This means the average household in Britain will typically need to spend an extra £1,537 a year to maintain their standard of living compared to a year ago.

Lynch added that while all bets were off in relation to an upward base rate move in March, there now is a question of how much the Bank of England will have to raise interest rates to get anywhere near its target 2 per cent inflation.

He said: "In terms of a BoE interest rate move, March was always a done deal for a rate increase even before this number. The question now is how much the BoE want to raise interest rates and how quickly.”

Yet even though rate rises have typically been good for cash savers, Rachel Springall, finance expert at Moneyfacts, said the reality has been somewhat different. 

“Savers have been dealt another blow this month as inflation rises once more and is unbeatable with any standard savings account.

"Despite a slight uplift to some of the top savings rates since last month’s inflation announcement, rising inflation is not allowing any respite. While the Bank of England predicts such a level to be temporary, even the government target of 2 per cent cannot be beaten unless savers lock into a five-year fixed bond.

"There are still savers out there waiting for the December 2021 base rate rise to be passed onto them, let alone the most recent uplift of 0.25 per cent a couple of weeks ago."

Pension pain

But the worst-hit will continue to be pensioners, according to calculations from Quilter. The analysis suggests pensioners will suffer the worst disparity in their state pension payments when compared to the inflation rate since the triple lock was brought in over 10 years ago.