Inflation plummets to 4.6% in October 2023 – and half of all savings accounts now beat it
Inflation as measured by the consumer prices index (CPI) fell sharply to 4.6% in October 2023 from 6.7% in September 2023, according to data from the Office for National Statistics (ONS).
CPI, which tracks the cost of an imaginary 'shopping basket' of around 700 popular goods and services, is the lowest it's been for nearly two years and means the government has met its pledge to halve inflation one month early.
Here, Which? explains why the inflation rate has eased, and which savings accounts and cash Isas can now help you beat it. We also share our advice for tackling the rising cost of living.
Why has inflation fallen?
The monthly plunge is the largest in the 26-year history of using CPI for measuring inflation and was driven largely by a drop in energy costs. This was down to Ofgem’s domestic price cap on annual gas and electricity bills falling from £2,500 last October to £1,923 the same month this year.
ONS figures show gas costs fell by 31% in the year to October 2023, compared with a rise of 1.7% in September, while the price of electricity fell by 15.6% in the year to October 2023, compared with a rise of 6.7% in September.
The news will be cold comfort for many households whose bills are still high in comparison to recent years. The ONS says the price of gas last month was around 60% higher than it was in October 2021, while the price of electricity was around 40% higher than two years ago.
Despite the latest inflation figure, consumers are still being stung by sky-high prices at supermarket tills. The ONS said that the price of food was about 30% higher than it was in October 2021, despite a drop in the annual rate of increase to 10.1% in October, down from 12.2% in September and a recent high of 19.2% in March 2023.
The graph shows how inflation has changed since August 2020:
Hundreds of savings accounts now beat CPI inflation
After more than two years of record price rises, savers have been forced to watch their cash slowly lose value over time. But today's dramatic drop in the CPI figure means savers can finally find inflation-busting deals.
Which? used Moneyfacts to look at accounts with a minimum investment of up to £5,000 and found that 696 offer rates higher than 4.6%. That's a massive 48% of the market, when accounts with opening restrictions are included. For accounts that anyone can apply for, 51% (599) offer rates above October's inflation figure, although that does include children's Isas and savings accounts.
This table shows the top rates for fixed-term and instant-access cash Isas and savings accounts, ordered by term.
| Account type | Account | AER/EPR | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | JN Bank Fixed-Term Savings Account | 5.6% | £1,000 minimum deposit |
| Five-year fixed-term cash Isa | Zopa Smart ISA 5-Year Fixed Term ISA pot | 5.91% | £1 minimum deposit |
| Four-year fixed-term savings account | JN Bank Fixed-Term Savings Account | 5.6% | £1,000 minimum deposit |
| Four-year fixed-term cash Isa | Zopa Smart ISA 4-Year Fixed Term ISA pot | 4.91% | £1 minimum deposit |
| Three-year fixed-term savings account | JN Bank Fixed-Term Savings Account | 5.9% | £1,000 minimum deposit |
| Three-year fixed-term cash Isa | Cynergy Bank Loyalty Fixed Rate Cash ISA | 5.16% | £500 minimum deposit |
| Two-year fixed-term savings account | Union Bank of India (UK) Ltd Fixed Rate Deposit | 5.8% | £1,000 minimum deposit |
Source: Moneyfacts. Correct as of 15 November 2023 but rates are subject to change. *The account from Gatehouse Bank is Shariah-compliant and so pays an 'expected profit rate' (EPR) as opposed to an 'annual equivalent rate' (AER).
Challenger banks and Islamic banks continue to dominate the market, with one-year fixed-rate products still offering the best returns. However, the Bank of England's decision to pause the base rate at 5.25% has led to 'a cooling' in the rise of top savings rates.
But inflation-beating deals may not be around for long. Average rates for fixed-term accounts have begun falling for the first time since April 2021. Moneyfacts data shows the average rate for a one-year fix dipped slightly from 5.42% AER in October 2023 to 5.36% in November 2023. Longer-term fixed accounts have seen the biggest drop in rates, with average interest falling from a high of 5.12% in September 2023 to 5.02% this month.
Rates on easy-access accounts are still going up, however. The average rate for a no-notice savings account rose from 3.16% AER last month to 3.18% in November.
Rachel Springall, finance expert at Moneyfacts, says that with inflation falling the spotlight is now on fixed-rate deals. 'Savers will no longer find a bond that pays more than 6%, but it is worth noting that challenger banks are still holding the top spots despite shuffling positions,' she explains.
'These institutions can launch enticing offers to attract deposits for their future lending, but they also act quickly to pull offers when they become fully subscribed. Consumers will need to act quickly to grab the top deals on offer and consider the more unfamiliar brands when comparing deals.'
- Find out more: best savings accounts 2023
What does this mean for the Autumn Statement?
Today's lower-than-expected inflation figures could mean there is more headroom for tax cuts in the Autumn Statement next week.
The Chancellor of the Exchequer, Jeremy Hunt, has repeatedly ruled out the possibility of tax cuts. However, a Tory cabinet minister has previously told the BBC that the government will consider tax cuts so long as it meets its target of halving inflation by the end of the year.
- Find out more: Autumn Statement 2023 rumours
How to cut costs when prices are still high
The decrease in inflation over the past few months doesn't mean prices are falling; it just means they're rising at a slower rate than before.
Food prices, for example, still remain high. We have lots of advice to help you cut costs on your grocery shopping, plus our monthly analysis reveals which is the cheapest supermarket for a big and small trolley of groceries.
- Find out more: get expert Which? advice, news and podcasts on cutting costs on our cost of living help page
