The broader retail price index (RPI) touched 4.3% in May, up from 4.2% in April, according to data released by the UK National Statistics Office.

Most commentators agree that with CPI inflation above the Government’s target of 2%, the current UK base rate of 5% is unlikely to be reduced in the short term, Abbey observed.

Information in the National Statistics Office report showed that upward inflationary pressures were being felt on a range of goods and services, including food and energy prices.

However, the rate of increase in the broader retail prices index was lower, as this benefited from the reduction in mortgage interest costs passed on by banks after the last UK base rate cut in April.

Mortgage interest costs are not included in the CPI index. The Bank of England is evidently still concerned about the prospects for inflation in the UK and sees a possibility of CPI reaching 4% later this year, according to a letter written by the Governor to the UK Chancellor.

With crude oil prices hovering around the USD140 per barrel mark, this too will add unwanted inflationary pressures, as motor fuel and domestic electricity and gas costs are all included in the basket of goods used to calculate the rate of inflation.

Commenting on the prospects for UK Base Rate changes, Nick McPhail, Treasury Manager with Abbey International observed that:

“It now seems unlikely that the UK base rate will be reduced in the short term, unless inflationary pressures retreat more quickly than is forecast, so for offshore savers, this could mean the current period of higher than average savings rates remains.”

Jane Matthews, Head of Marketing & Business Development at Abbey International added:

: “We have recently launched a range of fixed rate contracts offering returns of 7% gross over 3 months. This is a full 2% over UK Base Rate, but savers can also lock into rates 1.25% above UK Base Rate on 12 month deposits, so for savers looking for the combination of attractive guaranteed savings rates and the backing of one of the largest banking group in Europe, this is a good time to act.”

Abbey International offers a range of savings accounts in sterling, euros and US dollars.