UK INFLATION DIPS TO 1.6%

More encouraging news came from the Office for National Statistics (ONS) in mid August, as they announced that the Consumer Prices Index (CPI) had dropped to 1.6% in July from the 1.9% recorded in the previous month. This continues the trend of below 2% inflation throughout 2014, much to the pleasur e of the Bank of England (BoE).

The ONS cited a fall in the price of clothing, probably as a result of retailers extending their sales period to attract consumers, and both non-alcoholic and alcoholic drinks, particularly spirits and New
World wines. There was also a reported drop in the prices of financial services, with some major banks dropping their overdraft rates. Food sales also saw a price fall overall. Food is now 0.4% cheaper than in the same month last year including syrups, jam, sugar, chocolate and confectionery.

Finally, petrol and diesel fuel also saw a decline in price. Currently the average price of a litre of petrol is £1.31, against a price of £1.35 seen at the same time last year.

Whilst good news for the economy, it is not such good news for savers, as they will now need to find a home for their non-ISA savings paying at least 2% (or 2.67% for higher-rate tax payers) to counter the effects of both tax and inflation on their savings.

Meanwhile, the wider Retail Prices Index (RPI) remained static at 2.5%. This is a more closely followed statistic, as many other prices are measured against it, including train fares. The Government has stated that the train operating companies can increase next year’s prices by the RPI rate calculated in July of each year, plus an average of 1%, with flexibility within that for some fares to rise a further 2%. Therefore, some commuters could see their tickets rise by up to 5.5%; well above
the current inflation rate.

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