Millions of savers could face the consequences of a renewed inflation surge sparked by global tensions, with a fresh analysis warning that households may be up to £275 worse off than anticipated under a worst-case scenario.
Worst-case 'Trumpflation' scenario
Data from Moneyfacts reveals that even if savings account interest rates increase, the damaging effect of inflation could more than eliminate any benefits, leaving cash savings declining in real value. The alert follows the Bank of England modelling three potential trajectories for inflation and interest rates after the Iran conflict, spanning from a relatively mild outcome to a severe oil-driven price surge.
Under the most concerning scenario, where oil prices stay above $120 per barrel and inflation climbs to 6.2%, a typical saver with £10,000 could generate £475 in interest but still be £145 worse off once rising prices are factored in. This contrasts with a pre-conflict forecast where the same saver might have anticipated a £130 real-terms benefit, a shift of £275.
Expert analysis on the impact
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."
He added: "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 analysis, drawing on more than three decades of historical data, reveals savings rates typically trail approximately 0.5 percentage points behind the Bank's base rate, restricting the benefit households experience when rates climb.
Central scenario also concerning
Even under the Bank's central scenario, currently viewed by markets as the most probable outcome, savers are unlikely to come out ahead. Inflation of roughly 3.7% would largely offset interest rates of 3.5% to 3.75%, delivering minimal meaningful real-terms growth.
Mr French said: "Higher rates alone do not necessarily leave households better off if rising prices continue eroding purchasing power at a similar pace."
He cautioned that while borrowers may gain if rates stabilise or decline, savers remain "stuck in an increasingly difficult position" as inflation continues to diminish the value of cash. The figures highlight the predicament confronting households: even as headline savings rates improve, the actual value of money in the bank could still be declining.
