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Inflation rises to almost double Government target

Inflation rises to almost double Government target

Category: Economy

Updated: 18/05/2010
First Published: 18/05/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
The rate of inflation surged to 3.7% in April, almost double the Government's long term target of 2%, figures from the Office of National Statistics show.

Last month's rise followed an increase in Consumer Prices Inflation in March, when the measure inched up from 3% to 3.4%.

In its meeting last month, the Bank of England's Monetary Policy Committee admitted that soaring levels of inflation were causing some consternation.

"Given that a period of above-target inflation was in prospect at a time when monetary policy was exceptionally accommodative, this was a source of concern for some members," said the committee.

Having suffered from a low interest rate environment since the bank rate was slashed to 0.5% last March, savers are now finding their funds being eroded by high inflation.

To stop their savings pot effectively eroding away, a basic rate tax payer needs to find an account paying 4.63%, while a higher rate tax payer needs to find an account paying 6.17%.

Basic rate tax payers have a choice of 20 accounts to break even, while only one account is available to higher rate tax payers.

The 20 accounts on the market that do beat inflation are only likely to be suitable for a small proportion of savers. To qualify for these accounts, savers need to open a fee paying current account, invest in a riskier investment product or commit funds for five years.

Paying 8.00%, the HSBC Preferential Saver is the only product that beats inflation for higher rate tax payers, but savers need to hold or open a fee paying account with the provider to qualify. Thereafter the amount that can be invested is restricted to £250 per month (£3,000 over the one year term).

"Rises in the rate of inflation continue to antagonise savers who are already struggling to achieve a competitive rate of return on their money," Darren Cook, spokesman for commented.

"A spiralling inflation rate, which could be aggravated by the predicted rise in VAT can only point towards a bank base rate increase sooner rather than later."

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