Inflation drop ‘badly-timed’ for benefit claimants as next increase revealed

Lowered inflation rate will decide how much benefits are increased next year

Inflation rates dictate how much benefits are increased by each year (Joe Giddens/PA) (PA Wire)

Inflation has dropped below 2 per cent for the first time in over three years, raising hopes that the Bank will cut interest rates in November. The decrease exceeded many economist predictions, with the Consumer Price Index (CPI) falling to 1.7 per cent

But some experts have warned that the rate drop is “badly timed” for many people, as it will be a key factor in how much benefits are uprated by the DWP next April.

This is because September’s CPI – the 1.7 per cent figure – is generally the figure used to decide how much to increase working-age benefits from the following April.

This inflation rate has fallen from 2.2 per cent in August, with experts predicting it will rise back to this level in October as falls in energy prices drop out of the 12-month calculation.

Research from the Resolution Foundation think tank has found that a typical low-income family with two children receiving Universal Credit is now set to see their annual payments rise by £253 next April. However, if either the August or October rate were used instead, it would rise by £327 (£74 more).

Chancellor Rachel Reeves will reveal Labour’s Budget on 30 October (PA Wire)

Lalitha Try, Economist at the Resolution Foundation, said: “There was a larger-than-expected fall in inflation last month, but it will rise sharply in October driven by base effects from energy prices.

“This temporary fall is badly timed for millions of low-to-middle income families as will result in a lower increase in their benefits next year.”

Rampant inflation over the past few years has meant that increases in everyday costs have rapidly outpaced incomes. While news of lower inflation is welcome – as it means costs are rising less slowly – everyone still proportionately has less spending power than they did a few years ago.

This economic situation has sparked a cost of living crisis in the UK, which persists for millions. Household essentials like food, heating and water have become harder to afford, with the latest data from the Trussell Trust charity showing that 9.3 million people are facing hunger and hardship across the UK.

Iain Porter, Senior Policy Adviser at the Joseph Rowntree Foundation, said: “The reality is millions of families can’t afford enough food this week, or to turn the heating on as the nights get colder – emphasised by the fact that food price inflation has risen for the first time since early last year.

“The basic rate of Universal Credit is so insufficient it fails to protect families from hardship, and this increase will barely touch the sides. The Budget must contain urgent measures to support families who are going without essentials.”