Drop in inflation – how will this impact your finances? | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 20/09/2019

With Wednesday's CPI (Consumer Price Index) figures showing that inflation has fallen to 1.7% during August – its lowest level for nearly three years – we take a look at how this impacts consumers’ finances.

Day-to-day expenses

Inflation is measured by looking at the prices of thousands of products and services consumers spend money on, but prominence is given to what consumers are expected to spend more money on – so fuel costs will impact inflation more than peanut butter. The idea is that inflation will provide a snapshot of the cost of living in the UK, so with inflation going down, it means that the cost of living may have reduced for consumers. Saying this, although inflation has dropped, it doesn’t necessarily mean that all prices will have fallen as well, so even with low inflation consumers can still find they are paying more for everyday essentials such as food.


Although saving rates are not directly tied to inflation, it can have a significant impact on savings products. Lower inflation usually means that more savings accounts are able to match or beat inflation, however with rates already low, savers might be disappointed to see that the number of inflation-beating accounts still remains limited and savers have to lock their money away to match or beat inflation. Saying this, there are still many inflation-beating rates available in our fixed rate charts, and while it is not an inflation-beating rate, Al Rayan Bank surprised the savings market last week when it launched a highly competitive easy access savings account paying an expected profit rate of 1.61% AER.

Mortgage borrowing

Wednesday’s inflation figures were good news for mortgage borrowers as, combined with the competitive low mortgage rates available at the moment, it means that borrowers are more likely to have a higher amount of disposable income left after paying their mortgages. In addition to this, over the last few months the house price growth has slowed, particularly in London and the South East, making it easier for first-time buyers to get on the property ladder. At the moment, mortgage borrowers can get a two year fixed rate mortgage for as low as 1.19%, while a five year fixed deal is currently available from a rate of 1.54%.


Many pensioners have been feeling a financial squeeze recently, so Wednesday’s inflation figures will provide some with a bit of good news as it means that their spending power will increase. However, apart from this, the current level of inflation won’t provide pensioners with much relief from the current economic uncertainty.


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