Rise in inflation is bitter blow for UK savers

Today's announcement that UK inflation spiked to 3.5% in January, against 2.9% in December, is another bitter blow for UK savers reducing the real spending power of their nest eggs. While UK base rates continue to remain at 0.5%, with savings rates nowhere near what they have been in the past, the effective spending power of savings is falling in real terms.

If for example you are lucky enough to receive 1% interest on your savings then a 3.5% increase in the cost of living (assuming this is replicated across the year) would see the spending power of your money fall by 2.5%. Even if the rate of inflation falls back to anywhere around 2% it is highly unlikely that savers will be able to obtain this type of rate without committing their nest eggs to a long-term savings plan.

The UK authorities have on numerous occasions promised to address the imbalance between borrowers and savers but to all intents and purposes this is something of a lost cause at this moment in time. The only hope for UK savers is that savings rates increase in the medium to longer term and the damage to their long-term nest eggs is limited.