- Scenario A (more benign): Energy prices ease quickly, CPI peaks at 3.6% this year and falls below 3% next autumn.
- Scenario B (central case): Energy prices fall more slowly; inflation reaches 3.7% and stays higher for longer. Markets currently view this as the most likely path, implying a base rate of 4.00%-4.25%.
- Scenario C (worst case): Oil remains above $120, inflation peaks at 6.2%, and the base rate could rise to 5.25%.
- Analysis of more than 30 years of historic rates data by INTEREST from Moneyfacts has found that the average savings rate typically sits 0.5 percentage points below base rate.
- As a result, a £10,000 savings pot could make a real terms loss of £145, instead of the £130 profit it could have made before the conflict began despite higher savings rates because of the corrosive effect of inflation.
|
Scenario
|
Inflation outlook
|
Energy/oil assumption
|
Base Rate implication
|
Est. mortgage rate
|
Annual return (10k)
|
Gap vs est. inflation
|
|
Pre-conflict baseline
|
2% trajectory
|
Lower, stable
|
3.75% (with cuts expected)
|
3.30%
|
£330
|
+£130
|
|
7 May
|
Rising
|
Oil elevated
|
3.75% (no expectation of cuts)
|
3.51%
|
£351
|
Negligible
|
|
Scenario A (benign)
|
Peaks 3.6%, falls below 3%
|
Prices fall back
|
3.75%
|
3.25%
|
£325
|
Negligible
|
|
Scenario B (central)
|
Peaks 3.7%, stays elevated
|
Slower energy decline
|
4-4.25%
|
3.50%-3.75%
|
£350-£375
|
Negligible
|
|
Scenario C (worst case)
|
Peaks 6.2%
|
Oil >$120 sustained
|
Up to 5.25%
|
4.75%
|
£475
|
-£145
|
Adam French, Head of Consumer Finance at Moneyfacts, said:
“The Bank of England’s ‘Trumpflation’ stress scenarios show that while savers may see higher rates in the months ahead, the bigger challenge remains whether returns can keep pace with inflation.
“In the more benign scenario, where energy prices ease quickly and inflation falls back below 3% next year, savings rates are likely to remain close to current levels. Analysis by INTEREST from Moneyfacts of more than 30 years of historic rates data suggests the average savings account typically pays around half a percentage point below Base Rate. That would leave average savings rates around 3.25%, generating roughly £325 annual interest on a £10,000 balance - barely enough to preserve spending power once tax and inflation are considered.
“The Bank’s central scenario, which markets currently view as the most likely outcome, points to a ‘higher for longer’ environment. Under this path, Base Rate could rise modestly to between 4% and 4.25%, lifting savings rates towards 3.5%–3.75%. While that improves headline returns, inflation reaching around 3.7% means savers would still see little meaningful real-terms growth. Higher rates alone do not necessarily leave households better off if rising prices continue eroding purchasing power at a similar pace.
“The real danger comes in the worst-case scenario. If oil prices remain above $120 and inflation accelerates to 6.2%, Base Rate expectations could rise as high as 5.25%. Historical trends suggest savings rates could increase towards 4.75%, producing around £475 interest on £10,000 saved. However, despite the larger cash return, savers would still lose ground in real terms, leaving them effectively £145 worse off over the course of a year once inflation is accounted for.
“The broader issue is that interest rates continue to lag inflation, leaving savers stuck in an increasingly difficult position. Lower borrowing costs may ease pressure on mortgage holders and support lender competition, but households trying to build or protect savings are still seeing the real value of their cash steadily eroded. At the same time, persistent inflationary pressures from wages, energy and broader pricing expectations raise questions over whether rates have been high enough to fully bring inflation under control.
“For savers, remaining proactive is essential. Fixed bonds can help lock in stronger returns while regular reviews are important because many providers are slow to pass on Base Rate increases in full. Using ISA allowances where possible can also help protect returns from tax, particularly as higher rates mean more savers risk breaching their Personal Savings Allowance. However, holding excessive cash savings long-term isn’t always the best plan for building wealth. Savers with surplus funds should also consider higher-return options such as stocks and shares ISAs, although this depends on their risk-tolerance and financial plans.”
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all this press release can be reproduced, so long as we are sufficiently sourced.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
- Scenario A (more benign): Energy prices ease quickly, CPI peaks at 3.6% this year and falls below 3% next autumn.
- Scenario B (central case): Energy prices fall more slowly; inflation reaches 3.7% and stays higher for longer. Markets currently view this as the most likely path, implying a base rate of 4.00%-4.25%.
- Scenario C (worst case): Oil remains above $120, inflation peaks at 6.2%, and the base rate could rise to 5.25%.
- Analysis of more than 30 years of historic rates data by INTEREST from Moneyfacts has found that the average savings rate typically sits 0.5 percentage points below base rate.
- As a result, a £10,000 savings pot could make a real terms loss of £145, instead of the £130 profit it could have made before the conflict began despite higher savings rates because of the corrosive effect of inflation.
|
Scenario
|
Inflation outlook
|
Energy/oil assumption
|
Base Rate implication
|
Est. mortgage rate
|
Annual return (10k)
|
Gap vs est. inflation
|
|
Pre-conflict baseline
|
2% trajectory
|
Lower, stable
|
3.75% (with cuts expected)
|
3.30%
|
£330
|
+£130
|
|
7 May
|
Rising
|
Oil elevated
|
3.75% (no expectation of cuts)
|
3.51%
|
£351
|
Negligible
|
|
Scenario A (benign)
|
Peaks 3.6%, falls below 3%
|
Prices fall back
|
3.75%
|
3.25%
|
£325
|
Negligible
|
|
Scenario B (central)
|
Peaks 3.7%, stays elevated
|
Slower energy decline
|
4-4.25%
|
3.50%-3.75%
|
£350-£375
|
Negligible
|
|
Scenario C (worst case)
|
Peaks 6.2%
|
Oil >$120 sustained
|
Up to 5.25%
|
4.75%
|
£475
|
-£145
|
Adam French, Head of Consumer Finance at Moneyfacts, said:
“The Bank of England’s ‘Trumpflation’ stress scenarios show that while savers may see higher rates in the months ahead, the bigger challenge remains whether returns can keep pace with inflation.
“In the more benign scenario, where energy prices ease quickly and inflation falls back below 3% next year, savings rates are likely to remain close to current levels. Analysis by INTEREST from Moneyfacts of more than 30 years of historic rates data suggests the average savings account typically pays around half a percentage point below Base Rate. That would leave average savings rates around 3.25%, generating roughly £325 annual interest on a £10,000 balance - barely enough to preserve spending power once tax and inflation are considered.
“The Bank’s central scenario, which markets currently view as the most likely outcome, points to a ‘higher for longer’ environment. Under this path, Base Rate could rise modestly to between 4% and 4.25%, lifting savings rates towards 3.5%–3.75%. While that improves headline returns, inflation reaching around 3.7% means savers would still see little meaningful real-terms growth. Higher rates alone do not necessarily leave households better off if rising prices continue eroding purchasing power at a similar pace.
“The real danger comes in the worst-case scenario. If oil prices remain above $120 and inflation accelerates to 6.2%, Base Rate expectations could rise as high as 5.25%. Historical trends suggest savings rates could increase towards 4.75%, producing around £475 interest on £10,000 saved. However, despite the larger cash return, savers would still lose ground in real terms, leaving them effectively £145 worse off over the course of a year once inflation is accounted for.
“The broader issue is that interest rates continue to lag inflation, leaving savers stuck in an increasingly difficult position. Lower borrowing costs may ease pressure on mortgage holders and support lender competition, but households trying to build or protect savings are still seeing the real value of their cash steadily eroded. At the same time, persistent inflationary pressures from wages, energy and broader pricing expectations raise questions over whether rates have been high enough to fully bring inflation under control.
“For savers, remaining proactive is essential. Fixed bonds can help lock in stronger returns while regular reviews are important because many providers are slow to pass on Base Rate increases in full. Using ISA allowances where possible can also help protect returns from tax, particularly as higher rates mean more savers risk breaching their Personal Savings Allowance. However, holding excessive cash savings long-term isn’t always the best plan for building wealth. Savers with surplus funds should also consider higher-return options such as stocks and shares ISAs, although this depends on their risk-tolerance and financial plans.”
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all this press release can be reproduced, so long as we are sufficiently sourced.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
