Inflation held at the Bank of England’s 2 per cent target in June fuelling the possibility of an August rate cut.
Data from the Office for National Statistics showed inflation rose by the same rate as the 12 months to May 2024 fuelled by restaurant and hotel prices.
Prices also rose at 2 per cent, their slowest rate in three years but price increases in services continued unexpectedly at 5.7 per cent, according to the data.
Jonny Black, chief commercial and strategy officer at Abrdn Adviser said savers and investors shouldn’t assume the fight against inflation is won.
“Continued economic volatility, along with pressures from a competitive jobs market, could cause inflation to rise again later this year.
“The recent fluctuations in prices also underscores the need for vigilance. Without clear signs that inflation is calming down for the long haul, we may find rate-setters rethinking the timeline for cutting interest rates.
“Through the lens of financial planning, taking proactive steps is often more effective than reactive measures. Advisers play a key role in guiding clients to build resilient, long-term financial plans that better safeguard against the impact of inflation and unpredictable movements, which is key to capital preservation,” he added.
If an August rate cut were to happen as currently rumoured, this would ease pressure on borrowers, opening up the option of prioritising long-term saving, according to Dean Butler, managing director for retail direct at Standard Life.
He said: “If and when this happens, lower interest rates are likely to have two immediate impacts such as easing the pressure on people paying back loans and mortgages, while leading to lower returns on cash based savings.
“As a result, it’s worth it for mortgage holders coming to the end of fixed rate deals keeping a close eye on new deals coming to the market, if they’re thinking of re-fixing. It could also be beneficial for people finding themselves with a bit of extra money as a result of lower interest payments considering prioritising longer-term investments like pensions.
“Investments have the potential to provide more substantial returns than cash savings, particularly in a lower interest rate environment, and pensions have the added advantage of being highly tax efficient. A little extra now could have a big impact in the future.”
However, chief executive and founder of Unbiased, Karen Barrett, said the possibility of a rate cut in August was unlikely but believed it was a good time for people to review their finances.
“If you’re retiring soon or thinking about retirement, consider an annuity so you can have a guaranteed income for a specific amount of time or for life.A base rate cut could impact annuity rates, so lock in your annuity while rates are still favourable.
“Expectations of an August base rate cut have sparked a mortgage price war, yet experts are still split on whether a base rate cut will actually happen
