There was more bad news for savers today as it was announced that the Consumer Prices Index (CPI) for September – the UK’s key inflation rate – had hit 3%, a level it last reached in April 2012; the increase from 2.9% in August was fuelled by increases in transport and food costs.

This rise in inflation increases the likelihood of interest rates – currently at 0.25% – nudging up next month.

However, there will be some comfort for pensioners because under the current ‘triple lock’ guaranteeing the greater of CPI, earnings growth or 2.5%, means that the basic state pension payments from April 2018 will rise in line with September’s CPI.

A 3% rise will be the largest pension increase for six years, taking those on the new state pension to £164 per week.

The pensioners’ comparative good fortune contrasts with that of workers who have seen their average annual earnings rise by just 2.1% over the last year and savers who will struggle to achieve anything close to 3% from a savings account or Cash ISA, thereby seeing the real value of their money being eroded; business rates will go up by September’s Retail Prices Index (RPI) of 3.9%.

This further squeeze on incomes will be felt all the more acutely by those employed in the public sector where pay rises are capped at 1%, or those that rely on benefits which have been frozen.

‘his determination to deliver ‘intergenerational fairness’ may be viewed less favourably by older workers with some savings in the bank’

The fall in the value of the pound since last year’s Brexit vote has been one factor behind the rise in the inflation rate, as it increases the cost of imported goods.

The Bank of England has a target for CPI inflation of 2%, and its governor, Mark Carney, gave a heavy hint that interest rates could rise soon if the economy continued to struggle; the OECD has just revised its forecast for growth in the UK economy down to 1% in 2018, and warns that a no-deal Brexit could cost the country £40bn in 2019.

The governor has to write a letter of explanation to the chancellor if the inflation rate is more than 1% either side of the 2% target; he recently said that an increase in inflation was to be expected due to the weakness of the pound, and that he expected it to peak in October or November and at that point he thought it would be ‘more likely than not that I would be writing on behalf of the Monetary Policy Committee (MPC) a letter to the chancellor.’

With the prospect of poor economic growth and uncertainty over the Brexit process, the decision facing the monetary policy committee next month could be finely balanced; it will not be taken lightly as any interest rate rise now, will make life tougher for millions of mortgage holders and could  could be just the damper the economy could do without.

There will be those that hope that inflation has peaked as the downturn for sterling has now had more than a year to filter through and that the economy can dodge the bullet of an interest rate increase when growth prospects are poor, consumer and business confidence are low and we have political instability both home and away.

All of this will add some spice to Mr Hammond’s challenge to deliver a ‘big, powerful and revolutionary’ budget on November 22nd; his determination to deliver ‘intergenerational fairness’ may be viewed less favourably by older workers with some savings in the bank.

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