Five questions on: Falling inflation


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The Independent Online

Falling inflation is good news, isn't it?

Of course it is. It should mean lower price rises and less pressure on squeezed incomes. The official inflation rate has fallen to 2 per cent, which means it is at long last in line with the Bank of England's official target for the first time since 2009.

So what's the problem?

This week, for a change, we're bringing you good news. In particular, the news is good for savers as more accounts will now beat inflation, leaving more people actually getting a positive return on their nest-eggs. In fact, almost 100 accounts now match or beat basic-rate tax and inflation, and there are even 60 matching or beating higher-rate tax and inflation. That compares favourably to last July when not one account beat inflation for both basic-rate and higher-rate taxpayers.

Does that mean things should start to get better for savers?

Hopefully – and about time. After all, savers have been hammered by four years of above-target inflation and low interest rates. They're due a bit of a break. "If interest rates rise, savers should have more choice in picking a decent savings account, which may mean that, in particular, vulnerable people such as pensioners may soon be able to afford to switch the heating back on," said Anna Bowes of

But is this a real turning point?

If you're asking whether the lower rate means we're into economic recovery then experts aren't convinced that's the case. Jason Hollands of the adviser Bestinvest said: "Despite bullishness over the recovery, the real picture is probably more fragile than some headlines suggest."

So there may be trouble ahead?

If we are into an economic recovery then that could mean official interest rates climbing sooner than expected, maybe even this year. That would hit those who have stretched themselves to buy a home in recent times.

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