CPI falls to 6.8% What impact will this have on savers?

A lower than expected CPI print is good news for most of the economy as the cost of living slows. However, this means the Bank of England is more likely to keep interest rates on hold next meeting. UK savings rates are more closely linked to the Bank base rate than other financial products like personal loans or mortgages. This means that, although borrowing rates might be high, saving rates may have peaked for the time being.

If you have a pension or stocks and shares, this will be good news. It might signal a pivot in rate policy and I expect the FTSE to pop today. This could mean companies get more confident about the future and choose to start borrowing to invest again. This creates a better outlook for stocks and, generally, increases their price. If you can get a risk-free rate of 6%, with some savings accounts, it's unlikely many people will pile into shares. A change in rate policy could change this.

Lower inflation is great news for savers as it leads to slightly improved real returns for savers and investors. However, given that banks have already cut mortgage rates in anticipation of these inflation figures, I expect savings rates to follow suit. Consequently any gain for savers may be very short-lived, and for those just about to retire and looking to purchase an annuity, lower interest rates this could be very bad news.

The core inflation figure remaining stable will mean more base rate rises from the Bank of England, starting in September, which when eventually passed on to savers from banks will see better savings rates available. Unfortunately, those savings rates will still be lower than the rate of inflation, seeing the real-world value of savings reduce. Though the investment markets are largely not seeing returns above inflation either, yet carry more risk. So I would see many savers look for the best interest rates and keep their money in savings.

Where there has been a big surge in the demand for annuities, it's important that advisers lock in clients now before rates start to decrease.