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Rachel Springall

Finance Expert & Press Officer
Published: 18/01/2023
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While clothing and footwear prices fell, rising food and restaurant prices made a partial offsetting upwards contribution to inflation.

UK inflation, which is used to measure how prices increase, rose at a rate of 10.5% in the 12 months leading to December, according to the Office for National Statistics (ONS). This was lower than the 10.7% rise recorded in the 12 months leading to November.

“Inflation eased slightly in December, although still at a very high level, with overall prices rising strongly during the last year as a whole,” said Grant Fitzner, Chief Economist at the ONS.

The biggest reason for last month’s decline came from the easing price of fuel, which has fell for the sixth consecutive month after its peak in June. Further details on the decline of petrol prices were covered in an article written last week.

However, rising food, restaurant, and hotel prices kept inflation from dipping further.

In particular, food and non-alcoholic prices have continued to increase for the last 17 consecutive months. In the year to December, food and non-alcoholic beverage prices rose by 16.9%, while prices for restaurants and hotels rose 11.4% in the same period.

What does inflation mean for your savings?

Inflation continues to degrade the true spending power of savers’ cash, but this should not deter them from seeking out a new savings deal. Interest rates on some of the top fixed deals have dipped since last month, as savings providers moved to adjust their market positions.

Savers will need to act swiftly to grab the latest deals, as more movement is expected over the coming weeks. Those savers who are prepared to lock their cash away for a guaranteed return can still find fixed rate bonds and ISAs paying above 4%, where the top rate tables continue to be dominated by challenger banks and building societies.

Throughout 2022, the overall cash savings market benefited from consecutive base rate rises and competition from many savings providers.

Towards the tail end of 2022, however, there was an unprecedented spike in volatility surrounding interest rates and this prompted many savings providers to grab the spotlight within the top rate tables.

Challenger banks traditionally compete at pace to secure savers’ deposits to fund their future lending on fixed rate bonds, but as the expectations surrounding future interest rate hikes has eased, fixed bond rates have subsequently been cut, and some providers pulled out entirely from the market.

There has been a notable rate drop on longer-term fixed and this arena could worsen further if consumers prefer shorter-term offers.

Consumers’ attitudes to saving in 2023 will depend on their immediate needs and desired goals, but for many, flexibility with their money could be essential to help them keep on top of the cost of living.

Those savers comparing easy access accounts or ISA equivalents would be wise to check any terms meet their needs, as some accounts will restrict withdrawals and lead to a rate drop or closure of the account when any limit is breached. Comparing any existing account against the latest deals out there is essential and signing up to newsletters and rate alerts will help them save some time and keep them in the know.

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