Millions of savers could be left counting the cost of a fresh inflation shock triggered by global tensions.
Households could be up to £275 worse off than expected under a worst-case “Trumpflation” scenario, new analysis warns. Figures from Moneyfacts show that even if interest rates on savings accounts rise, the corrosive impact of inflation could more than wipe out any gains – leaving cash savings losing value in real terms. The warning comes as the Bank of England models three possible paths for inflation and interest rates following the Iran conflict, ranging from a relatively benign outcome to a severe oil-driven price shock.
Under the most alarming scenario, where oil prices remain above $120 a barrel and inflation surges to 6.2%, a typical saver with £10,000 could earn £475 in interest – but still be £145 worse off once rising prices are taken into account.
That compares with a pre-conflict outlook where the same saver could have expected a £130 real-terms gain = a swing of £275.
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 – based on more than 30 years of historical data – shows savings rates typically lag around 0.5 percentage points behind the Bank’s base rate, limiting how much benefit households see when rates rise.
Even in the Bank’s central scenario, currently seen by markets as the most likely outcome, savers are unlikely to get ahead. Inflation of around 3.7% would broadly cancel out interest rates of 3.5% to 3.75%, leaving little 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 warned that while borrowers may benefit if rates stabilise or fall, savers remain “stuck in an increasingly difficult position” as inflation continues to eat away at the value of cash.
The figures underline the dilemma facing households: even as headline savings rates improve, the real value of money in the bank could still be shrinking.