Inflation reaches double digits and 40-year high

Food was the biggest contributing factor to the latest rise.

Inflation rose by 10.1% in the 12 months leading to July, according to the latest figures from the Office for National statistics (ONS). In comparison, inflation was recorded at 9.4% in the 12 months leading to June.

It means that inflation has now reached a 40-year high, with the Bank of England still predicting that inflation will rise further and peak at more than 13%.   

The main contributor towards increasing inflation this month came from food costs. Between June and July this year food and non-alcoholic beverage costs rose 2.3%, the biggest monthly increase seen in 21 years.

In particular, bread, cereals, milk, cheese and eggs saw the biggest increases.

As seen in previous months, the cost of fuel also had an impact on rising inflation. Between June and July alone fuel costs rose by almost 3%, registering the single biggest monthly increase since ONS records began.

Savers will see more positive change across variable and fixed rates since the last inflation announcement. However, the stark reality is that not one standard savings account can currently beat inflation. Savers must not become apathetic as they could miss out on a lucrative rate, so even if cash is being eroded in real terms, savers can at least secure a higher interest rate to mitigate its impact. Challenger banks continue to jostle for table-topping positions to entice savers’ deposits, so it’s wise to keep a close eye on the moving market.

Easy access rates are steadily rising, largely thanks to competition within the top end of the market, but also from rate increases in light of the Bank of England base rate rises. Those savers who have not reviewed their savings pots for a few months should be encouraged to do so, as where a top rate on easy access accounts of 1% could not be acquired at the start of 2022, savers would now find 1.5% or more as a competitive return in the present market on offer from over a dozen providers.

Fixed bonds are thriving, and savers will now find the top one-year fixed bond pays 1.65% more than a year ago, which is great news for those coming off a fixed bond and hoping to lock their cash away for another 12 months. Anyone considering a fixed bond must ensure they are comfortable with locking their cash away, as it’s entirely possible fixed rates will rise further still in the months to come, but savers may also need to access their cash to cover unexpected rises in expenses amid the cost of living crisis.

ISAs are also experiencing a spate of rejuvenation, good news for those who may have patiently waited to utilise their ISA allowance hoping for higher interest rates or are looking to transfer older pots. However, the top fixed ISA rates pay much less than the equivalent fixed bonds, and this is for a few reasons. There are several providers operating within the fixed bond market but not the ISA market, and offering ISAs comes at additional administration costs, plus consumers can transfer fixed ISA pots, but fixed bonds typically tie in any investment for the duration of the term.

The unfamiliar brands continue to dominate the top rate tables, whereas the more household big bank brands are noticeably absent. There is little reason for savers to overlook any brands if they fall under the same protection the Financial Services Compensation Scheme (FSCS) provides.