Inflation is expected to remain steady at around 2 percent when figures are released next week, with significant implications for savings, mortgages and annuities. Financial experts suggest that Britain faces a benign economic outlook for the rest of the year, which savers and borrowers should capitalise on.

Yet despite most figures looking positive, there’s a risk that prices could start to rise again towards the end of this year. This is due to firms passing on the impact of increases in staff pay and energy bills.

Experts are now looking at the way ahead for this year. Here, we look at the possible impact on savings, mortgages and annuities.

Impact on mortgages

Sarah Coles, head of personal finance at Hargreaves Lansdown, has stated: “Inflation is expected to come in roughly around 2 percent next week, which would be unlikely to change expectations significantly around the timing of the first interest rate cut. Right now, there’s around a 50 percent chance that rates will come down in August, and if not, it’s likely to be September.”

She added: “This will be welcome news to anyone who remortgaged onto a variable rate early this year when rate cuts were expected to be just round the corner who will have been on tenterhooks ever since.”

However, she cautioned: “Movement isn’t likely to be quick, with no more than a couple of cuts in 2024. There’s also the chance of a longer pause if wages are pushed up by changes to the minimum wage or if economic growth surprises on the upside.”

Ms Coles noted that several high street lenders have reduced mortgage rates recently. She explained: “Part of this is a price war during a busy time for the markets ahead of the school holidays. Part of it is the fact that the first forecast rate cut is inching closer, and lenders are factoring in lower rates throughout the fixed period.

“If you have a remortgage looming, this will be a welcome development. But with so many uncertainties ahead, it might be worth agreeing a rate now. That way if rates come down ahead of your deal expiring you can find a better offer, but if they drift up again in the interim you have locked in a more competitive deal.”

Worried woman with a laptop
Several high street lenders have reduced mortgage rates recently (Image: Getty)

Impact on savings

Mark Hicks, head of Active Savings at Hargreaves Lansdown, said: “It’s a perfect scenario for savers at the moment with inflation continuing to fall and savings rates trending higher in recent weeks. Both easy access rates and fixed terms have started to creep up in July, driven by intense competition at the top of the market which savers should be taking full advantage of.

“This means savers are consistently getting above double the rate of inflation returns, which increases the attractiveness of holding cash in your portfolio. There are still multiple fixed and easy access rates across the savings market that offer returns in excess of 5 percent.”

However, he cautioned: “As we get closer to a base rate cut, I’d expect to see the easy access market implement cuts much more swiftly.”

But he warned: “However, the recent increase in competition at the top of the market could present a pleasant surprise as savers are presented with some very attractive products for that little bit longer.”

Impact on annuities

“Low inflation is important for anyone living on a guaranteed income such as an annuity,” according to Helen Morrissey, head of retirement analysis, Hargreaves Lansdown.

“Over time it will nibble away at your purchasing power and so the lower it is the better. Pensioners have had a rough ride in recent years with inflation topping out at 11.1 percent – this didn’t so much nibble away at their income as bit out huge chunks and left many people having to make big cuts to their spending in a bid to make ends meet.”

“However, even though the inflation beast looks tamed for now it doesn’t mean it shouldn’t be factored into your retirement planning.”

She said that “level annuities” offer higher starting incomes than their inflation linked counterparts though a product linked to prices will grow over time whereas a level one will not. The latest data from HL’s annuity search engine shows a 65 year old with a £100,000 pension can get up to £7,217 per year from a level single life annuity with a five-year guarantee. In contrast, one linked to RPI offers a much lower £4,513 as a starting income.

She said while the difference may put off many people, the RPI option might pay out more as it rises in line with inflation over 20 years.