"We need to make the most of our savings": Experts comment on inflation figures

The Office for National Statistics has today announced that UK inflation rose by 0.7 per cent for the 12 months to January.

The organisation announced this morning (17 February), that product prices across the UK had risen by 0.7 per cent over the past year, compared with 0.6 per cent for the 12 months to December.

Business leaders from across the country have commented on the figures.

Ian Warwick, Deepbridge Capital

“Today’s data confirms the challenging environment for investors as a long period of low interest rates combined with lockdowns has resulted in a scenario where many consumers have accumulated a comparatively high level of savings in a low-return environment.

“Many are therefore sitting on cash piles that are not appreciating in value while agile companies, which continue to survive, and in some cases, thrive, by providing a product or service which has a genuine medium to long term solution to a recognised problem, require capital to continue to develop and grow.

“As a result there is an inherent opportunity for investors and their advisers to address the funding gap and provide long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme.

“The types of companies we support, being innovative technology and life sciences companies, are by their very nature expected to be highly innovative and are therefore are generally focussed on addressing long-term market needs.

“As we witnessed last year, we believe there should continue to be a genuine need for the research, development and/or products such companies are producing.

“Of course, the life sciences sector has perhaps never seen greater focus and there continues to be great UK innovations in this space.

“The biggest problem for growing early-stage companies may be access to funding, but we expect UK investors and financial advisers to continue to utilise the Enterprise Investment Scheme (EIS) to support such great companies whilst allowing investors to benefit from the generous potential tax reliefs on offer.

“EIS has never been a more important government tool for supporting the UK economy and it has never been more vital for investors to understand the potential benefits.”

Sarah Coles, Hargreaves Lansdown

“A January home improvement frenzy drove prices higher, as locked down shoppers decided that if they had to stay home and stare at the four walls, they may as well paint them.

“Overall, steady and subdued inflation looked decidedly tame, but given free rein we could see it take flight.

“The biggest increase came from furniture, household equipment and routine maintenance, while the biggest drag on inflation was a drop in clothes prices. Fashion was heavily discounted again, to persuade us to revamp our wardrobes despite not having anywhere to go or anyone to see.

“The price of food bounced back from December discounting, particularly fruit and vegetables.

“Some of this will be because supermarkets are no longer competing for who can fill the festive food table for less, but part is also because of restrictions caused by both the pandemic and Brexit hitting the supply of goods.

“This also remains an issue for the price of games consoles, computer games and toys.

“Supply chain problems aren’t set to ease any time soon. We’re also seeing global rises in the cost of shipping and commodities, which will feed into inflation eventually.

“Around half the fall in inflation since the onset of the pandemic has been caused by the drop in fuel prices - which plummeted in early 2020.

“Once this moves out of the inflation figures, we can expect inflation to rise this spring. Similarly, the VAT cut for the hospitality sector helped depress inflation, and that comes to an end in April.

“The Bank of England expects inflation to rise slowly towards its 2% target during 2021, but it recognises that making predictions in the current environment is extremely difficult. Other commentators warn of the risk of higher inflation.”

“You can’t keep pace with inflation in an easy access savings account without restrictions or by fixing in an account for less than two years, and you’d have fallen a long way short with the average easy access account, which fell to a record low of 0.18% in January (according to Moneyfacts).

“It means we need make the most of our savings. This starts with shopping around for a competitive easy access account for 3-6 months’ worth of essential expenses. Then consider fixing the rest of your savings for the most suitable periods, in order to lock in a better rate. With rates so low, you might be tempted to wait and see when they rise.

“However, with so much uncertainty around at the moment, the Bank of England is keen to keep rates low, so you could be in for a hell of a wait. If your savings are languishing in an account with a rock bottom rate in the interim, you’ll pay the price for taking your time.”

Laith Khalaf, AJ Bell

“Inflation has started 2021 in much the same vein as it finished 2020, low and moving sideways.

“The fact that restaurants and hotels provided a large upward pressure on CPI, despite largely being shuttered in January, provides ample cause for caution when interpreting broad economic indicators in a world where activity has been so horribly distorted by lockdown.

“The January price variation of some common food items like cauliflowers, crisps and fishfingers suggests there may have been some temporary Brexit disruption at play too.

“While the headline CPI rate is glacially cool, the debate between inflation and deflation is raging. Commodity prices have been creeping up, and the market seems to be buying into a global economic recovery, with cyclical stocks performing well.

“Combined with the huge amount of monetary and fiscal stimulus pumped into the economy, that suggests that inflationary pressures may be brewing.

“However, the deflationary argument is also compelling. Unemployment is set to rise, global governments are going to have to raise taxes to pay back their massive debt mountains, and technology is going to continue to push costs down.

“On top of that sterling has been on the charge, which reduces UK import prices and hence keeps inflationary pressures at bay.

“In the short term it’s pretty nailed on that inflation will rise quickly towards the Bank of England’s 2 per cent target in the coming months, as the big energy price drops of spring 2020 start to get lapped by fresh data and the temporary VAT cut for hospitality and leisure businesses expires in April.

“That all coincides with the anticipated lifting of the current lockdown, when price collection will start to more accurately reflect normal activity.

“Beyond that the crystal ball is particularly cloudy, which is problematic, seeing as inflation and deflation pose very different risks to savers and investors.

“But the burden of proof currently lies with those who think rising prices will be a problem, because the last decade of ultra-loose monetary policy has failed to coax the inflation genie out of the bottle.

“For the moment market prices imply no movement in UK base rate over the next year, suggesting that inflation will remain under control, and the Bank of England won’t face pressure to tighten policy.

“However even if inflation is contained at 2 per cent, the interest currently being paid on cash mean that most money in the bank will be losing its buying power. Seeing as wealthier Britons have stashed so much away over the course of repeated lockdowns, that should be supportive of UK asset prices, in particular residential property and equity markets.”

Kirsty Ramsey, the Chartered Institute of Marketing (CIM) North East

“The impact of the last year has been really mixed for consumers, on the one hand many have faced crisis, lost jobs, redundancy or reduced income and on the other hand, many consumers have saved more, reduced debt and massively reduced outgoings due to hospitality and travel bans.

“With this in mind, a rise in prices could affect customer groups in different ways.

“Often having responsibility for pricing, it’s key that marketers use data and insight to understand how their customers could be feeling about any changes to pricing and gather data around their likely behaviour.

“Following the pandemic, consumers generally have new motivations for buying things and are placing new values on purchasing, what’s essential, what they’ve missed the most and so redefining value, marketing propositions and careful use of promotions will help to ensure the impact isn’t negative or noticeable (where price increase is low).”

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