A chill wind for nest eggs as inflation climbs

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The Office for National Statistics said UK inflation, measured by the Consumer Price Index, jumped from a five-year low of 1.1% in September to 1.5% in October. It was the first rise in eight months, fuelled mainly by an increase in transport costs.

Basic-rate taxpayers now need to secure a savings rate of at least 1.87% to beat inflation — but fewer than a fifth of the variable-rate accounts on the market are paying out that rate or more.

Those paying the higher rate of income tax now need to earn at least 2.5% — available at less than 10% of variable-rate accounts — to maintain the spending power of their nest egg.

Accounts offered by Government-backed banks Royal Bank of Scotland and Lloyds are among those that will erode the value of savings. RBS's Direct Saver Plus account only pays out 0.1% while Lloyds' Advantage Saver offers 1%.

The average rate across all variable rate savings accounts is 0.98%.

Fixed-rate accounts offer better deals, with Skipton Building Society offering 5.35% for savers locking away cash for two years — but today's inflation spike and expectations of rising interests rates may make savers wary of doing so.

Moneynet's Andrew Hagger warned: "Savers will find it increasingly difficult to get a real return."