Inflation held at 4.5 per cent

The official measure of inflation remained at 4.5 per cent in May – the highest level since October 2008.

Meanwhile, the retail prices index (RPI), which includes council tax and mortgage payments, also held steady at 5.2 per cent.

The Office for National Statistics says a 1.3 per cent rise in the price of food and non-alcoholic beverages between April and May is largely responsible for keeping the rate of inflation at the same level. 

The rate is still more than double the Bank of England's target of 2 per cent.
  
Kevin Mountford, head of banking at moneysupermarket.com, says high inflation is continuing to cause problems for UK households.

'The sharp sting of high inflation is not new to UK households, as consumers have battled with the rising cost of living over the last 12 months,' he says.

'Energy hikes, the soaring price of petrol and the rising cost of everyday basics such as food, have hit households hard. Many workers also have to deal with pay freezes, meaning their incomes are actually dropping in real terms, so it is no surprise many feel like their finances are either at, or rapidly approaching breaking point.'

Inflation is still having an effect on savings. Mountford says to beat inflation, basic-rate taxpayers need an account paying at least 5.63 per cent to gain benefit in real terms from their savings, increasing to 7.51 per cent for higher-rate taxpayers. 

'The low number of products currently offering a return above inflation means keeping a closer eye on interest rates and being prepared to switch is more important than ever,' says Mountford.

'Even if savers can't beat inflation, the difference between the average and top paying rates is considerable, so switching to a better deal can help to limit the erosion.'

Despite calls for interest rates to rise to combat inflation the Monetary Policy Committee kept base rate at 0.5 per cent for a record 27th consecutive month in June.

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