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Inflation hits 5.5% as households and savers feel the squeeze

Savers feel the squeeze

UK inflation edged up further in January to 5.5%, its highest level since 1992, according to data published this morning by the Office for National Statistics (ONS).

Worse still, the ONS is predicting inflation will rise further, potentially hitting 7.25% by April. Grant Fitzner, chief economist at the ONS, said: “Inflation ticked up again in January, reaching a near 30-year high.”

The Bank of England’s 2% inflation target is now in a different timezone, with soaring energy, fuel and food prices a major contributor to sky high inflation. Threadneedle Street is trying to rein inflation in, but the small interest rate rises we have seen to date will almost certainly not be enough.

The clear takeaway from this data is that inflation has got savers in an unprecedented stranglehold. Savers have endured well over a decade of despair now and things just keep going from bad to worse.

Even though interest rates are edging up, the rate at which inflation is rising is negating any of the benefits for savers.

It doesn’t help that many banks’ ISA savings rates are pitiful at best. Money left in a standard bank savings account or cash ISA is taking an absolute battering at present and it may be that more people turn to stocks and shares ISAs to have any chance of a real return.

What’s not in doubt is that, with inflation at a 30-year high, this ISA season is going to leave a lot of investors scratching their heads as to where, and in what asset class, to invest.

UK savers and investors are seeking real returns but the quandary is where to find them. The conclusion, for many who would traditionally remain in cash, is likely to be the stocks and shares ISA.

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