One in four savings accounts now offer rates below the current rate of inflation, measured by the Consumer Prices Index (CPI), according to data provider Moneyfactscompare.
CPI jumped from 2.9% to 3.1% for the year to August, according to the latest inflation data from the Office for National Statistics, released this morning.
There are currently 1,815 savings account that beat inflation, according to the data provider. Of these accounts 193 are easy access, 161 notice accounts, 159 variable rate ISAs, 417 fixed rate ISAs, and 885 fixed rate bonds.
The CPI rate announcement comes ahead of the latest Monetary Policy Committee meeting for the Bank of England, which had been broadly expected to hold the base rate steady.
Charlie Ambler, co-chief investment officer and partner at wealth manager Saltus, expects the Bank to raise the base rate to 4% before the end of the year.
He said: “For investors, the question is how far rates will rise. We think a single increase to 4% by the end of the year is realistic, meaning portfolios built for falling rates will need to adapt, particularly in rate sensitive areas like gilts and domestically focused equities.”
Richard Carter, head of fixed interest research at Quilter Cheviot, expects to see at least one rise to the base rate in the near future.
He said: “With the situation in the Middle East looking increasingly fraught, the expectation is that inflation will continue to climb higher until the end of the year at a minimum.
“This is putting a huge amount of pressure on both the Bank of England and the government. With the BoE meeting tomorrow, today’s figures put a rate hike into the category of a genuine consideration, with at least one expected this year. Markets have begun to price in the potential for further rate hikes into 2027, highlighting that the UK has struggled to tame inflation recently and is not expected to do so soon this time around either.
“The expected pace of the rate hikes may be slightly exaggerated at this point by the market, but really the only thing potentially stopping the BoE from hiking this time around is the employment picture, which remains mixed at best.”
Davis Rees, head of global economics at Schroders, disagreed saying he does not expect the Bank of England to raise the base rate tomorrow.
He said: "Today's figures confirm UK inflation is likely to rise further in the months ahead, as higher energy, manufactured goods and food prices work their way through the economy.
"But this is not yet a repeat of the 2022 wage-price shock. The economy is not running hot, the labour market remains loose and wage growth is slowing. That should limit the extent to which imported price pressures become embedded in domestic wages and prices.
"As a result, the Bank of England has grounds to resist market pricing for interest rate hikes this year. It can look through a temporary global inflation shock while there is still sufficient slack in the economy to prevent it becoming a domestic one."