UK inflation down to three-year low

Inflation

The UK’s rate of inflation went down in September, falling to its lowest level for nearly three years, official figures showed today.

In its latest inflation report, the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) measure stood at 2.2% last month, down from 2.5% in August and from the peak of 5.2% a year ago, in September 2011.

Downward pressure to the change in the CPI last month came from utility bill rises in September 2011 falling out of the index calculation. At the same time, there was upward pressure from rising fuel prices.

September’s CPI figure is used to set the following year’s rise in state benefits, such as unemployment, disability and maternity benefits, so next year benefits are likely to go up by a smaller amount. The exception is the basic state pension, which is treated slightly differently because it is covered by a government guarantee that it will rise by a minimum of 2.5%.

The CPI is the UK government’s preferred measure of inflation and is used by the Bank of England for its inflation target. CPI inflation has been falling for the past 12 months, although it still remains above the target of 2%, and with several utilities announcing energy price rises in recent days there is a chance that inflation will rise again next month.

The UK’s Retail Prices Index (RPI) measure of inflation, which includes housing costs, dropped to 2.6% in September from 2.9% in the previous month. RPI is usually somewhat higher than CPI and the ONS has launched a consultation on whether to align the two measures more closely.

September’s RPI is used to calculate next year’s increase in business rates. The impact of a 2.6% rise in business rates, on top of this year’s 5.6% increase, was highlighted by Dr Adam Marshall, director of policy at the British Chambers of Commerce (BCC), who said that the continued rate rises are adding to businesses’ operating costs at a time when ministers should be doing “whatever they can” to hold down such costs in the interests of growth and jobs.

“It would be cynical and damaging of the government to continue to freeze council tax while allowing business rates to spiral ever further upward,” he added.

The British Retail Consortium also weighed in on the issue, warning that a 2.6% increase in rates in April 2013 would hit retailers with GBP175m in extra costs and would “seriously impede” their ability to invest and create jobs.

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