You can tackle inflation even if the Bank of England won't

The Bank of England trimmed interest rates today by 0.25% to 5.25%. The cut was not unexpected following an uncharacteristic tip-off from the Governor of the Bank of England that interest rates were bearing down on demand.

Today’s rate reduction was made against a backdrop of stagnating house-price growth, waning consumer confidence and a fall in mortgage approvals. But it was also made in the face of rising energy costs and record oil prices, which are likely to fuel inflation.

It appears that the Monetary Policy Committee is prepared to sacrifice low inflation to avert an economic slowdown. However, a solitary rate cut is unlikely to help, while inflation is a clear and present danger for every consumer.

David Kuo, Head of Personal Finance at Fool.co.uk, says: “The Bank of England has indicated that it is prepared to throw caution to the wind, and target a looming recession rather than inflation.

“However, consumers should be aware of the damaging effects of inflation even if the Bank of England chooses to ignore it for now. In order to beat rising prices, we need to ensure that any savings we have will guarantee a better return.

“For many homeowners, paying down the mortgage is one of the best ways of achieving a guaranteed inflation-beating return. If you are currently paying 6% interest on your mortgage, as a standard-rate tax payer you would need to earn interest at 7.5%. A higher-rate tax payer would need to find an account paying 10%.

"The Bank of England is answering the call of two masters - recession and inflation. We only have to cater for inflation, and achieving inflation-beating returns is within the powers of every consumer."