Inflation jumps unexpectedly in October
The unexpected jump in the Consumer Price Index (CPI), from 2.2% to 2.7%, was considerably higher than previously predicted.
The rise in October is said to be due to one-off factors with tuition fees and food and drink pushing up the prices.
The increase in energy prices is also said to have contributed to the rise in inflation.
Glenn Uniacke, senior dealer at the foreign exchange specialists Moneycorp, said: “A jump in inflation had been expected, not a leap.
“But the correct response is a sharp intake of breath, not a panic. Surging inflation will hurt savers and pensioners, but should not derail the recovery.”
Uniacke also adds that the pound is likely to strengthen in the short term as quantitative easing is likely to be the Bank of England’s first choice to help boost the UK’s struggling the economy.
Uniacke said: “No-one should doubt that if the Bank thinks it needs to print more money to stimulate growth, it will not hesitate do so.
“The prospect of further QE has receded only temporarily, and any boost in Sterling will likely be equally brief.”
However savers are being urged to take a look at the savings rates they are currently getting.
According to MoneySupermarket.com, to beat inflation a basic rate tax payer will need an account paying at least 3.39% to gain benefit in real terms from their savings, increasing to 4.51% for higher rate tax payers, and 5.41% for 50p tax payers.
For basic rate tax payers there are only 11 accounts that beat inflation, all of them being fixed rate bonds. For higher rate tax payers there are no accounts that beat inflation.
Kevin Mountford, head of banking, at MoneySupermarket.com, said: “It is as ever vitally important savers check their rates and be prepared to switch if they are not currently on the most competitive deal.
“The difference between the average and top paying rates can be significant, so moving to a better deal can go a long way to help savers limit the impact of inflation on their pots.
“Only a handful of savings accounts currently beat inflation, and all of them are fixed rate products.
“However, even if you cannot find an account that beats inflation, consumers need to make sure they are on the best deals possible to limit the impact of inflation and using products such as Cash ISAs to take advantage of the tax free benefits is a must.
Savers are also being encouraged to consider alternative products such as offsetting savings against mortgage borrowing, peer-to-peer lending, or structured savings products.