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Savings accounts: their interest rate vs UK inflation

Last Edit: 17/07/18

Since the financial crisis of 2007–2008 -- a financial crisis that began in the US subprime mortgage market -- the interest rate offered by UK banks has generally failed to keep up with either the CPI or RPI inflation rate. The UK has two inflation benchmarks: RPI (Retail Prices Index) and CPI (Consumer Prices Index). The difference between the two inflation benchmarks is that CPI does not take into account housing inflation, such as rent, mortgage payments, and council tax. Due to the recent rises in rents, RPI is almost always higher than CPI, therefore, let's see if saving rates can keep up with CPI, whose inflation rate per year has been as follows (Source: Office for National Statistics):

In 2018, the CPI inflation rate has been: January 3.0%, February 2.7%, March 2.5%, April 2.4%, and May 2.4%. In comparison, the best savings account rate for July 2018 are: Atom Bank 2.05% (fixed rate bond one year), and Birmingham Midshires 1.35% (easy access). Apart from 2015 and 2016, when CPI inflation was 0% and 0.7%, respectively, the trend of savings accounts underperforming has been similar to 2018. It should be noted, however, that it is difficult to produce statistics for the overall average interest rate for savings accounts, though some website have produced some, such as:

As a saver, you may be wondering why savings accounts have performed so poorly for so long: it is largely due to the historically low base rate that the Bank of England has had: 0.5% since 2009, and 0.25% in 2016. Alongside a low base rate, the Bank of England has been printing money -- known as quantitative easing -- which is known to lower the value of the UK's currency versus the dollar. With the dollar used to buy energy and food on global trading markets, the policy of quantitative easing has the effect of rising the price of energy and food -- due to the UK importing a large % of both -- and therefore increasing the rate of inflation.

With wages in the public sector, on average 2008-2018, growing slowing than the rate of inflation, this has resulted in the standard of living being lowered for the UK since the financial crisis of 2007–2008. The uncertainty of Brexit impacted the value of sterling -- explains the increase in inflation in 2017 compared to 2016 -- and will probably see savings accounts underperform CPI and RPI inflation benchmarks for the immediate future.