The Office for National Statistics (ONS) confirmed that the Consumer Prices Index (CPI) rose by 7.9 per cent in the 12 months to June 2023, down from 8.7 per cent in May, although industry experts have suggested that this could be a "cold comfort".

The update was better than many economists had predicted, with XPS Pensions suggesting the announcement will reduce the pressure on the Monetary Policy Committee to continue the expected path of increasing interest rates, although rises are still expected.

In particular, XPS Pensions Group noted that the price rises seen for June in isolation were in line with the Bank of England target, which represents a substantial reduction of price increases seen more recently and a “very positive sign” that things are getting back on track.

XPS Pensions Group chief investment officer, Simeon Willis, stated: “Today’s encouraging figures show that we are finally making ground in the fight against inflation.

"Whilst the 12-month number is still too high, what's encouraging is that the price increases over June in isolation have slowed considerably. If this trend continues, we could see the 12-month figure come down to target by Spring next year.

"Whilst 12-month inflation at current levels remains damaging for any pensioners with non-inflation linked benefits, this announcement represents welcome news and means than the impact on the real value of a retiree’s pension is less than it might otherwise have been.”

However, PensionBee director of public affairs, Becky O’Connor, argued that while the “heat of high inflation is beginning to cool a little, giving hope to households that the worst could be over for both price and interest rate rises”, many are still facing financial difficulties.

"For anyone who is hanging on by their fingernails, this decline in prices may be cold comfort," she continued.

"Many households, especially those facing high prices and punishing borrowing costs, still face months of difficulty.

“If prices continue to come down but rates remain high, the worst of the economic pain will be transferred from the general population dealing with high prices in the shops, to mortgage borrowers grappling with monthly repayments."

This was echoed by Standard Life managing director for retail direct, Dean Butler, who argued that “inflation just isn’t going away as quickly as many would have hoped”, pointing out that it is not only day-to-day finances that are being hit.

“On top of the obvious impact on monthly finances, people lucky enough to have cash-based savings are now starting to feel the impact of savings rates failing to keep up with inflation, for a sustained period of time,” he stated.

However, Butler said that this could make pensions a more attractive offer, arguing that "in the UK, we can sometimes be a nation of savers, but not investors, meaning the chance to benefit from the potential power of investment growth can be missed".

“It’s important to bear in mind, however, that any sum invested can go down as well as up and they sometimes aren’t as easy to access as cash-based savings," he added, "so it’s good idea to keep a ‘rainy day’ fund in cash for emergencies too, if you can.”

Questions for the state pension?

Industry experts have pointed out that, despite the slight fall in inflation, retirees look set for another multi-hundred-pound boost as high inflation persists, raising potential questions around the cost of the state pension given recent pressure on government finances.

Broadstone director, David Pye, said that it looks likely that the state pension will rise above £11,000 next year, which will "further embed its importance as the foundation of pensioners’ income".

“At this current rate of increase, it won’t be long before retirees start tripping over the £12,500 income tax threshold solely based on the state pension," he continues.

“However, with government finances under pressure, the soaring cost of the state pension triple-lock will raise further questions around its long-term viability.

"A demographic bomb is soon to hit with a significant number of baby boomers approaching retirement which will ratchet up the state pension’s cost to the taxpayer’s public purse.”

Share Story: