Falling food prices see UK inflation unexpectedly hold at 4%

Inflation figures remaining stable may be met with mixed emotions.

The rate of UK inflation held at 4% in the year to January, revealed today’s release from the Office for National Statistics (ONS), following an unexpected uptick the previous month.

These latest figures may be met with mixed emotions. Many had anticipated a rise in inflation, so rates remaining stable may have bettered some expectations. However, it still sits stubbornly high at double the Bank of England’s 2% target.

Falling food prices

Notably, the monthly price of food and non-alcoholic beverages fell by 0.4% between December 2023 and January 2024 – the first fall in monthly prices since September 2021, and the largest fall since July 2021.

As a result, food and non-alcoholic beverages were one of five divisions to make a downward contribution to inflation this January.

This is a stark contrast to a year ago, when prices increased by 0.6% between December 2022 and January 2023.

What does this mean for savers?

Savers who prefer to lock their cash into a fixed rate bond or ISA for a guaranteed return will find more than half of the savings market can beat inflation, but they may be disappointed to see the top fixed rates have tumbled over the past month.

Providers have been particularly active in this space due to the ongoing uncertainties surrounding future rate expectations. Challenger banks which sit towards the top end of the fixed bond market have had to adjust their market positions and will likely keep a close eye on their margins compared to their peers in the coming weeks.

Meanwhile, those savers who prefer to have flexibility with their savings pots will find variable rates on the top easy access, notice accounts and ISA equivalents have been resilient. Indeed, it has been six months since the market last felt a base rate rise, and many providers have likely caught up with these rises by now, so any future improvements to the top rates will be down to competition.

We would expect providers to improve their ISA rates at this time of year, so savers need to consider using their ISA allowance as the new tax-year in April fast approaches.

There are many savings accounts for consumers to consider, but it remains the case that the convenience of putting cash in an easy access account with the biggest high street banks comes at a cost, as they pay much less than the top easy access accounts, which pay around 5%.

Savers would be wise to check the terms and conditions of any account carefully; can they access it quickly; does it penalise them for making more than one withdrawal in a year and do they need to note any introductory bonus? It is vital savers are conscious of any restrictions on their account and make sure they switch if it’s not working hard enough for them.

Inflation is predicted to come down to around 2.7% by Q4 2024 and, based on today’s top rates, savers would be able to make a return on their cash on most savings accounts on the market should interest rates hover around current levels.

Savers who have not reviewed their existing rate would be wise to do, as well as taking time to compare the latest deals on the market and sign up to rate alerts for any table-topping rates.