UK inflation falls to 17-month low

Food prices are rising at a slower pace, while a fall in energy costs also contributed towards this month’s decline.

UK inflation, which is used to measure how prices increase, fell to 6.8% in the year to July, according to the Office for National Statistics (ONS). In comparison, inflation sat at 7.9% in the year to June.

Matthew Corder, Deputy Director of Prices at the ONS, said much of this month’s decline was due to falling energy prices.

Inflation for housing, water, electricity, and gas sits at 6.8% in July, down from the peak of 26.7% seen in January. The driver behind this was due to the Ofgem lowering its price cap last month.

In addition, the price of food is rising at a slower pace.

“Although remaining high, food price inflation has also eased again, particularly for milk, bread and cereal,” said Corder.

Meanwhile Chancellor Jeremy Hunt said the latest figures were proof that the Government’s plan to return inflation to its 2% target is working.

“While price rises are slowing, we’re not at the finish line. We must stick to our plan to halve inflation this year and get it back to 2%,” he said.

In response to today’s figures, Shadow Chancellor Rachel Reeves said UK inflation was higher than other major economies, like the US and Europe.

For July, inflation in the US stood at 3.2% while in the eurozone it stands at 5.3%.

Savers must ensure they keep on top of the changing market and switch if they are getting a raw deal. The savings market is benefitting from provider competition within the top end of the market, but also from consecutive base rate rises, so it’s vital consumers take time out to compare the latest offerings.

However, there has been notable volatility across fixed bonds in recent weeks. Inflation still has an eroding impact on savers’ cash, but they can at least secure a higher interest rate to mitigate its impact.

Those savers looking to maximise the interest they earn on their savings will find one-year fixed rate bonds are currently paying the top rates. Any saver looking to supplement their income may then want to lock into a deal that pays monthly interest.

Meanwhile, those savers who want flexibility with their cash will find easy access accounts have continued to improve over recent weeks, due to a combination of Bank of England base rate rises and provider competition.

However, a few of the top accounts carry certain criteria, such as dropping the rate when someone breaches a set number of withdrawals, or that they pay a bonus for a year or so. It will be down to the investor to check all the details and make sure they stay within the rules to maximise the interest they earn.

Savers must also be sure to review their rate regularly to ensure it remains competitive.

One area of market to see improvements has been the returns offered on ISAs, so those savers who are still able to use their ISA allowance may wish to compare the latest offers. As interest rates rise, savers may find they could breach their Personal Savings Allowance, and an ISA is a way of protecting their cash from tax.

There are even ISAs that allow savers to spread their cash across both easy access and fixed offers, ideal for those who want to chase the highest rates but also need a portion kept in a flexible pot.

It is imperative savers keep an eye on the changing market and sign up to rate alerts and newsletters for awareness.