UK inflation fell from 1.5 per cent in August to 1.2 per cent in September, the lowest level since 1.1 per cent in September 2009, according to the Office for National Statistics (ONS).
The drop is greater than the expected fall to 1.4 per cent and the ninth consecutive month that the rate, as measured by the Consumer Price Index (CPI), has not met the Bank of England’s 2 per cent inflation target.
The Retail Prices Index (RPI) measure of inflation fell from 2.4 per cent in August to 2.3 per cent in September.
Falling oil and petrol prices, import costs dropping due to the exchange rate, record low wage growth and competitive prices of food are all contributing factors behind the low rate.
The inflation report, coupled with weak wage growth, also lowered expectations of an interest rate rise before the end of this year.
Richard Ross, director at Chadwicks Ltd, said, “The Bank will raise interest rates when Mark Carney no longer sees a danger of the UK economy slipping back into a recession. As soon as the slack in the labour market is resolved, then interest rates may rise, but it doesn’t look like that will happen anytime soon.
“Capital investment in the UK is very low at the moment, and the slack in the labour market needs to be addressed before the UK can become internationally competitive again.”
The release of the latest inflation data coincides with the government’s announcement that over-55s will be able to withdraw several lump sums from their pension pot tax-free, though low inflation often corresponds with low wage increases, making it more difficult to save in the first place.
Matt Pitcher, executive partner at Towry, said, “Today’s inflation announcement from the ONS means that the triple lock guarantee will kick in next April, which is likely to mean an above-inflation increase for pensioners of 2.5 per cent. This is great news not only for pensioners themselves, but for the government, with the guarantee proving its worth during the final few months of the current parliament.”
The values of state pensions are subject to a triple lock – that is, any rises are determined by CPI inflation, average earnings or 2.5 per cent.
Mr Pitcher said, “But the news may put a strain on those saving for retirement. Low inflation means low wage increases – and ultimately the government will need to fund the rises owed to pensioners from the taxpayer’s purse. A recent IFS study showed that income tax receipts are often below the Office for Budget Responsibility forecasts, which might feed into the ability to support further changes to taxation.”
