The losers of falling inflation

Rate cuts are going to negatively impact savers but this plays straight into the government hands. Rachel wants to get the UK investing and with cash returns falling, savers will be looking for greater returns even if inflation continues cooling .

Savers are the obvious losers. If inflation is 3% and savings rates start to slide in anticipation of a cut from the Bank of England, real returns shrink fast. Anyone sitting on large cash balances should review rates now and consider fixing, because banks tend to move quickly when base rate expectations change. The Pound is likely to soften if markets fully price in a cut, especially against the Dollar where rates may stay higher for longer. We have already seen Sterling react to shifting rate expectations this cycle, and further weakness would not surprise me if UK growth also cools. For internationally trading businesses, this is a moment to get proactive. Review currency exposure, tighten up hedging where margins are thin, and lock in favourable exchange rates where possible. A weaker Pound helps exporters but squeezes importers, so clarity on cash flow forecasts is key.

Lower inflation means a further cut to interest rates is coming. Savers beware, because Banks will bring forward cuts to their savings accounts. Anyone looking to retire might also want to get their skates on, as annuity rates will also be on their way southwards.