State pension to rise by £473 for millions as UK inflation rate for September falls to three year low --[Reported by Umva mag]

THE UK’s rate of inflation has fallen below the Bank of England’s target for the first time in three years.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measured 1.7% in the 12 months to September.

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It comes after inflation rose by 2.2% in the 12 months to August, unchanged from July.

Inflation is a measure of how much the prices of everyday goods such as food and clothes, and services such as train tickets and haircuts, have increased compared to a year earlier.

It’s important to note that when inflation drops it doesn’t mean that prices have stopped rising, it just means they are doing so at a slower pace.

Grant Fitzner, chief economist at the ONS, said lower air fares and petrol prices were the biggest driver for this months fall.

The reading has also increased the likely hood that that the Bank of England will cut the base rate again when it meets on November 7.

The Bank of England has a target of keeping inflation at 2%.

Today’s reading marks the first time in three years that inflation has fallen below the central bank’s target.

The figures also further suggest that the state pension is now expected to rise from £11,502.40 to £11,975 per year – a £473 boost.

That’s because of the triple lock system, which sees the state pension rise in line with whatever is highest out of: wages for May to July, 2.5% or September’s inflation figures.

Revised statistics being released on Tuesday revealed that growth in employees’ average total pay was 4.1% in the three months to July – not 4%.

Today’s inflation figures do not outpace this.

The reading also means that those on benefits could also see their support increase by 1.7% in April.

This is because of “uprating” and payments usually increase in line with the previous September’s inflation figure.

It will be a significantly lower boost than what was seen in previous years.

The Department for Work and Pensions (DWP) will confirm the figure just before the end of the year.

Darren Jones, Chief Secretary to the Treasury, said: “It will be welcome news for millions of families that inflation is below 2%.

“However, there is still more to do to protect working people, which is why we are focused on bringing back growth and restoring economic stability to deliver on the promise of change.”

What it means for your money

The reading has also increased the likely hood that that the Bank of England will cut the base rate again when it meets on November 7.

The BoE raises or lowers its base rate, which dictates what interest rates are charged to banks, in order to control inflation.

By raising, it is supposed to make the cost of borrowing more expensive and control spending, therefore driving down inflation.

The BoE started raising its base rate in December 2021 as the UK economy emerged from the coronavirus pandemic.

But the BoE cut rates from 5.25% to 5% in August, marking the first cut since 2020 in a boon for borrowers.

This could lead to lower interest rates on costly loans such as a mortgage.

Alice Haine, personal finance analyst at Bestinvest said a second interest rate reduction in November “could energise the mortgage market even further with rates falling at an even faster pace”.

She explained: “Average mortgage rates for two- and –five-year fixed-rate deals dropped to their lowest level since May 2023 between the start of September and the start of October.

“While there has been some volatility since then, with some lenders increasing rates amid concerns about Labour’s ‘painful’ Budget and the effect geopolitical tensions in the Middle East might have on oil prices, the general outlook for mortgage rates remains positive.”

For savers, easing inflation can signal an end to competitive rates.

Deals above 5% have become rarer following the last rate cut and another slash could dampen this further.

Alice added that locking in a top rate now before the best deals disappear could be a “sensible strategy”.

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