Yesterday's Spring Statement was purposefully devoid of big announcements, but it still heralded some good news. Chancellor Philip Hammond confirmed slightly stronger economic growth and a rise in the minimum wage, and predicted a drop in borrowing as well as inflation.
Stronger growth and rising wages
The key take-home message the Chancellor wanted to portray was one of positivity; he announced that the Office for Budget Responsibility (OBR) has revised the UK's growth forecast up by 0.1%, adding that the economy has grown for five consecutive years and exceeded expectations in 2017.
The OBR now predicts UK economic growth of 1.5% for 2018, up from its previous estimate of 1.4% in November, with both 2019 and 2020 predictions remaining unchanged at 1.3%. However, growth further ahead has been revised down – to 1.4% in 2021 and 1.5% in 2022 – but he was at pains to point out that "forecasts are there to be beaten".
While this may not have a direct impact on consumer finances – although it could no doubt filter through – one aspect of the Statement that will definitely have a positive effect is the increase to the National Living Wage, which will rise to £7.83 per hour in April and could be worth an extra £600 per year to a typical full-time worker. Then there's the tax-free personal allowance – the amount of money you can earn before paying tax on it – which is also set to rise in April, and will stand at £11,850 for the 2018/19 tax year.
Could your savings soon beat inflation again?
But perhaps one of the most intriguing prospects – at least where savings are concerned – is the outlook for inflation. Inflation relates to the cost of goods and how this increases over time; to be able to make the most of your money, inflation should be at least less than your yearly wage growth and savings rates.
Unfortunately, inflation has outstripped savings rates for well over a year, which means that most cash savings accounts (except for some regular savers
) have been losing money in real terms, i.e. when subtracting inflation from the rate. For example, the Consumer Price Index (CPI; the most common measure of inflation) stood at 3.1% in January, while the best fixed rate bond
pays a rate of 2.65%, which essentially results in a negative return of -0.45%.
Luckily, the OBR has now predicted that inflation will fall back to its target of 2% by the end of the year, which means savers would once again be able to gain a real return on their savings pots, if they can find the best rates.
However, those who can't wait for this do still have an alternative. Certain high interest current accounts
currently pay a rate of interest that can beat inflation – up to 5% in some cases. While they come with certain restrictions, they could be a decent way to gain inflation-beating interest while retaining complete access to your funds.
And as stated before, some regular savings accounts
can also beat CPI. The only thing to note with both of these types of accounts is that they tend to have low investment limits (at least when it comes to the money you can gain interest on). So, for a big savings pot you'll still need to look at those accounts that can at least get close to the rate of inflation – and that means looking at fixed rate bonds