Home Finance Inflation rate dropping: What it means for your savings, home and annuities

Inflation rate dropping: What it means for your savings, home and annuities


UK inflation fell to 2.3 per cent in April, its lowest level for nearly three year. Finance experts said it is a good time to start considering your financial options whether you are a saver or a borrower.

Down from 3.2 percent in March, the fall was driven largely by a 12 percent reduction in the energy price cap in April. While the fall in inflation is good news and closer to the two percent target the Bank of England (BoE) is aiming for, it is higher than expected alongside services inflation, reducing the chance of a base rate cut in June.

“Within minutes of the official inflation numbers hitting our screens, market expectations that the Monetary Policy Commitee (MPC) could shift the base rate down next month plummeted from 50/50 to just over 10 percent,” said Danni Hewson, head of financial analysis at AJ Bell.

With the changes in inflation, whether you’re planning for retirement, buying a home, remortgaging, or investing, it’s a good idea to get financial advice to make the most of your money. Experts at Unbiased have shared what falling inflation rates mean for everyone.

What lower inflation means for savers

The drop in inflation means prices are rising more slowly rather than falling. While this isn’t exactly what consumers are seeking, it’s still welcome news.

As inflation is now 2.3 percent and top savings rates are around five percent, savers can still easily beat it if they opt into a savings account with a fixed rate. This means their money doesn’t lose value in real terms.

However, the more likely base rate cuts become, the more likely savings rates will fall. While the likelihood of a base rate cut has been pushed back, it’s worth shopping around for a fixed-rate deal now if you want to take advantage of generous rates for longer.

What lower inflation means for homeowners

Meanwhile, homeowners have had a tricky time this year as mortgage rates have been volatile, rising and falling with little warning. While mortgage rates initially fell at the end of 2023, they recently rose again after US inflation increased more than anticipated. This led to uncertainty over when the BoE will cut the base rate.

As the BoE was largely expected to cut the base rate in June before today’s inflation data, mortgage lenders were recently reducing their rates. There’s a chance mortgage rate cuts will ease (or rates could rise) now that the base rate is expected to be cut later than June.

What lower inflation means for annuities

If you’re retired or hoping to retire soon and are considering an annuity, consider the impact a future base rate cut may have on annuity rates.

Over two years, annuity rates soared 24 percent, driven by base rate rises. So, any future cuts could impact your rate and the fixed income you receive.

Since 2009, Unbiased.co.uk has helped more than 10 million people find the right advice. It can match users to a fully regulated financial consultant, mortgage broker or accountant with over 27,000 independent advisors to choose from. All the experts listed with Unbiased are regulated by the relevant official bodies, appropriately qualified, independent of product providers and the first meeting with an advisor is free.

Unbiased has partnered with Samaritans to support their vital, 24/7 emotional support service. Financial worries are one of the many concerns mentioned by people who contact Samaritans and Unbiased wants to help ensure the charity can continue to be there for anyone struggling to cope. For every enquiry submitted and successfully matched to an adviser, unbiased donates 30p to Samaritans and aims to hit a total of £25,000.

You can also get financial guidance from Citizens Advice and Money Helper.

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