Following a surprise and record-breaking rise in inflation last month, experts are warning that savers and mortgage borrowers may be the worst affected.

How much has inflation risen?

• The Consumer Price Index (CPI) – the official inflation measurement – has risen from 3.4 per cent in March to 3.7 per cent in April this year
• The Retail Price Index (RPI) – the official measure used by banks and employers – jumped from 4.4 per cent in March to 5.3 per cent in April

This latter figure is apparently the largest monthly increase seen since 1991. It is expected to have a noticeable negative effect on the UK economy and savers in particular, especially when the predicted increase in VAT is taken into account as well.

For savers, the rise in prices for standard products and services may mean that the value of their deposits would be significantly reduced. Responding to the situation in an attempt to counter inflation, savers would then have to secure a more competitive rate of return on their deposits.

Mortgages

Mortgage borrowers may also be affected by the rise in inflation, as they fear that the Bank of England may raise interest rates in response. The CEO of housing charity Shelter has explained the situation, saying:

“There are 5.4 million mortgage holders who haven’t even thought about how they will pay their mortgage if interest rates go up. We know for a significant number of people, just keeping on top of their current mortgage repayments is a constant struggle.”

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