Inflation increases to 41-year high

Food and energy bills were once again the main drivers behind the increasing cost of living, despite the Government’s introduction of the energy price guarantee.  

UK inflation rose by an annual rate of 11.1% in October, a full percentage point more than the 10.1% increase registered in the 12 months leading to September.

This is according to the Office for National Statistics (ONS) which found that energy and food prices made the largest contribution to the increase in inflation.

Simply put, it means a typical basket of goods is now 11.1% more expensive than what it would have cost last year, with food and energy costs making significant rises.

The average UK consumer can now expect to pay just over 10,3p per Kilowatt of gas, up from the 7,8p per kilowatt in September. Meanwhile, for electricity, the same average consumer can expect to pay 34p per kilowatt of electricity, up from the 27.2p it cost last month.

This rise is despite the introduction of the Government’s energy price guarantee, which included a £400 non-repayable discount to all eligible homes on their energy expenditure.

Last month Chancellor Jeremy Hunt confirmed that this plan will last to the end of April, after it was previously set to take place over two years.

Food and non-alcoholic beverages rose by over 16% in the 12 months leading to October. This means that everyday staples have now risen in cost for the last 15 consecutive months.

Like last month, milk, cheese, and eggs were some of the foods which saw the biggest increase in price.

Savers will find providers have reviewed their table-topping cash interest rates in recent weeks, with notable attention made to fixed rate bonds and ISAs.

Since the last inflation announcement, some of the top fixed rate bonds have seen reductions but further adjustments could be set to come. Savers may need to act with pace if they wish to take advantage of the current rates on offer.

Inflation is still way above the Government’s target of 2% and it is eroding cash in real terms at its present level, but this should not discourage savers from comparing rates and switching to a better deal.

Those savers who are prepared to lock their cash away for a year will find the top rate of 4.50% from Ikano Bank is significantly higher than last year’s top deal, of 1.35% from the Union Bank of India (UK) Ltd. Notable improvements have been made to longer-term fixed bonds since last year, but due to the volatility of interest rates over this period, savers who want a guaranteed return may well act on the side of caution and stick to shorter-term bonds.

ISA rates are encouragingly on the rise, but there is still a rate gap between the top fixed ISAs and fixed bonds. It is essential savers consider both their ISA allowance and their Personal Savings Allowance before they commit but also be conscious of the rise in interest rates if they have a large pot.

Flexibility with cash could be key for many savers amid a cost of living crisis, and thankfully, easy access and notice account rates are rising.

However, despite consecutive base rate rises, some savers may find their loyalty has not been rewarded, so switching is key.

Challenger banks and building societies are offering some of the best rates in this arena, so it’s wise to consider these brands over the more familiar household names. In addition, savers will need to also digest the terms any account may impose, such as withdrawal restrictions.