Falling energy prices have driven down inflation to its lowest level in five years, according to the Office for National Statistics.
UK inflation – as measured by the Consumer Prices Index – fell to 1.2% in September from 1.5% in August, official figures show. This is the lowest rate since September 2009.
The Retail Prices Index showed a marginal fall, to 2.3% from the previous month.
The ONS attributed the fall to lower energy and food prices, as well as lower transport costs.
Inflation is now well below the Bank of England’s target range, which is at 2%. The current low rate is likely to push back the prospect of an interest rate rise until deep into 2015.
The announcement is a welcome one for borrowers, who are now likely to hold onto lower interest rates for longer.
New homebuyers have been the target of recent warnings, that they should not become complacent in a climate of lower interest rates.
It is also, on the face of it, better news for savers, who now have a better chance of matching inflation – even if only temporarily – through their savings accounts.
The Predicament for Savers
As it stands, savers only need to achieve around 1.50% on a standard taxable savings account to avoid their cash losing value relative to the cost of living.
This is useful respite for savers, who have seen banks and building societies continue to chip away at savings rates. This week alone has seen reductions from Shawbrook Bank, the West Bromwich Building Society, first direct, Tesco Bank and the Bank of Cyprus.
This has made it still quite challenging to find accounts that overcome even this meagre requirement.
The top no-notice account is offered by BM Savings at 1.60%, though this includes a hefty bonus rate, so savers will have to review their position after 12 months before the rate plummets.
The ISA market is a little healthier, if only because the tax burden is reduced. Savers may have to subscribe to a notice account to achieve the best rates.
The Islamic Bank of Britain (1.81%) and Teachers Building Society (1.65%) top the charts for access accounts, though savers will have to give up to 120 days’ notice to withdraw their cash.
The Post Office has a solid offer of 1.55% on an instant access ISA, which includes an 18-month bonus, while NS&I remains competitive at 1.50%, though the Treasury has continued to lower its ISA rates as deposits have increased.
The fall in inflation may prove another false dawn for savers, then, as rates will only begin to normalise and reward savers once the central bank rate begins to rise as well.