A surprising inflation rise and hints at a major cash ISA overhaul – what you need to know from Money this week
By Jess Sharp, Money live reporter
The UK economy was back in the spotlight this week after inflation hit its highest level in 10 months.
Official data showed it reached 3% in January – up from 2.5% in December and higher than the 2.8% forecast by economists.
Transport, food and non-alcoholic drinks were the main drivers behind the rise, according to the Office for National Statistics.
Remember, inflation is the rate at which prices are rising, so it directly affects our overall cost of living.
If wages are not increasing at the same pace, the value of your money decreases.
Off the back of the data, hopes of a Bank of England interest rate cut in March diminished, with markets pricing in an 83% chance that it will stick at 4.5%.
Our business and economics correspondent Gurpreet Narwan explored what the inflation figure could mean for the Bank and the “tight spot” it was now in…
Movements in the mortgage market
The economic environment also caused movements in the mortgage market with swap rates, which are used to price the mortgage rates, rising.
Some lenders, including MPowered Mortgages hiked deals, blaming the rise in swap rates, while Santander removed its market-leading 3.99% five-year fix completely.
However, we did see some banks and building societies move to boost their offerings with several cuts.
David Hollingworth, from L&C Mortgages, said the higher-than-anticipated inflation figure “could put some serious drag on any further momentum building for fixed-rate cuts”.
We explored more about this in this week’s Mortgage Guide, which you can read below…
Chancellor hints at cash ISA overhaul
Moving away from lenders and closer to savers, Chancellor Rachel Reeves sparked a lot of attention after hinting that there could be a cut to the tax-free cash ISA limit.
Senior City executives were reported to have met Reeves this week to discuss economic growth, and proposed the idea of slashing the limit from £20,000 to £4,000 a year.
When asked about the reports, Reeves said she wanted “to get the balance right”.
“I do want to create more of a culture in the UK of retail investing like what you have in the US to earn better returns for savers and to support the ambition to grow the economy creating good jobs right across the UK.”
Her comments came on the same day that analysis showed that after seven months when returns on cash ISAs beat inflation, they fell back into negative territory.
Average monthly interest rates on cash ISA deposits dropped to 1.77% compared to 3% CPI inflation, according to wealth managers Quilter.
Elsewhere in the savings market, we saw the NS&I cutting rates to a number of its products and the prize fund rate on the hugely popular premium bonds.
We spoke to Anna Bowes, savings expert from The Private Office, about whether or not premium bonds were still worth having in this week’s Savings Guide…
Also in Money this week
Our Business Live presenter Darren McCaffrey sat down with the chairman and founder of JD Wetherspoon Tim Martin, who said that prices were certain to rise in April.
We seized the opportunity to talk to him by putting several questions from you, our readers, about his pub chain, Brexit and dogs…
You can watch him answer them in the video below.
We’re signing off for the week now – but don’t forget to check out our Saturday long read from 8am.
Our Money features writer Brad Young explores the impact that Britain’s shrinking families will have on the economy – and what’s putting people off having children.