How consumers can rebuild in the aftermath of high inflation

13o June 2024

With the latest data from the Office of National Statistics (ONS) revealing that inflation had dropped year-on-year from 3.2% in March to 2.3% in April, people could be forgiven for thinking their financial pressures would be relieved.

However, prices—which rocketed between 2022 and the end of 2023—are still climbing, just at a slower rate. The effects of the cost-of-living crisis and high inflation environment of recent years will continue despite inflation edging closer to the Government’s 2% target. Therefore, it's important for consumers to stay vigilant for opportunities to improve their financial situations and take advantage of the gradually easing economic conditions.

Get a handle on your finances

Firstly, to make the most of the drop in inflation, savers should capitalise on the substantial number of savings deals that now outstrip inflation. As of today, nine in ten deals offer inflation-beating rates.

Consumers need to seek out and benefit from these savings deals actively. Many continue to stick with their current banks, either due to a lack of knowledge about the savings market or simply out of convenience. This is costing many Britons the chance to enjoy the fruits of lower inflation that have been scarce in recent years.

Additionally, consumers need to consider wage growth and its effect on inflation. It may sound contradictory, but the fact that wages grew annually by 5.9% in April should call for caution. Businesses may view the increase in spending power as an opportunity to increase their profits by increasing prices. Any price hikes open the door for inflation to start heading upward again.

Any increase in inflation will likely delay the Bank of England's plans to cut interest rates, which are forecast for this summer. As a result, people paying off debts, such as mortgage holders, might not receive the relief that many are predicting.

Nonetheless, the current low inflation and high interest rate environment present savers with an opportunity to recover some of their real-term losses.

Taking advantage of the saver friendly environment

To feel the full benefit of the current market outlook, it’s important that consumers are proactive. This means people must search the market and be open to working with non-high street lenders who are more dynamic and collaborative.

SmartSave, for example, offers a one-year fixed-rate deal of 5.16%, while their 2-year fixed-rate bond comes with a rate of 5.06%, which tops the best-buy tables. Both of these products give consumers returns that are more than 2% above inflation, although money does need to be locked away for a fixed term to obtain these rates.

With inflation nearing the Government's 2% target and interest rates still high, UK savers have reason for optimism. But this optimism will only be realised if people act now. The past two years should have taught us that things can change as quickly as they arrive, and the chances are the savers market we find ourselves in won’t be around for long.