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Inflation and savers/investors

ended 16. August 2023

Following the latest inflation data published this morning (click here), UK news agency, Newspage, asked financial services experts what this means for savers, investors and whether the former may get real returns in 2023? Their views are below.

3 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
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 at the 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.
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Editor
Scott Gallacher
Director at Rowley Turton
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 could be very bad news.
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John Choong
Senior Equity Research Analyst at Investing Reviews
Investors and lenders alike can breathe a sigh of relief after today's CPI inflation print came in lower than expected. However, Britons shouldn't start cheering from the top of their roofs just yet as core CPI remains relatively sticky at 6.9%.

This will be a continued concern for the Bank of England as resilient spending in recreational and cultural activities — the superglue in sticky services inflation — shows little signs of letting up. In fact, Barclaycard's July data showed spending on entertainment rose 16% due to the high demand for gigs and concerts.

Either way, today's print will be seen as more of a positive than negative as it affirms the BoE's view that inflation is indeed falling. But on the flip side, sticky services inflation will weigh down on sentiment. As such, investors alike will have to hope for a cooler-than-expected wage growth print just before the MPC meeting in order for markets to regain their confidence and see real returns before year-end.