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State pension to rise after UK inflation had risen to 3%

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Pensioners to take advantage of highest figure since 2012 as rise renews focus on stagnant pay and looming interest rate hike

Britain’s pensioners will receive a 3% increase in their state income next year after the annual inflation rate reached its highest level since early 2012 last month.

The 12 -month increase in the cost of living as measured by the consumer prices indicator( CPI) edged up from 2.9% to 3 %, in accordance with recent Bank of England forecasts.

Q& A

What is inflation and why does it matter?

Inflation is when costs rise. Deflation is the opposite – price lessens over period – but inflation is far more common.

If inflation is 10 %, then a PS50 pair of shoes will cost PS55 in a year’s day and PS60. 50 a year after that.

Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10 %, the real rate of interest on your pot is actually 0 %.

A relatively new phenomenon, inflation has become a real worry for governments since the 1960 s.

As a rule of thumb, hours of high inflation are good for borrowers and bad for investors.

Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over 7 years halves the real value of a mortgage.

On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.

The government’s opted measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the Consumer Prices Index( CPI ).

The Retail Prices Index( RPI) is often used in wage negotiations.

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Any further increase would force Mark Carney, the governor of the Bank of England, to write a letter to the chancellor, Philip Hammond explaining why inflation was not being kept to its 2% target. The City expects the Bank’s monetary policy committee to raise interest rates next month for the first time in more than a decade.

Inflation has risen from 1% to 3% over the past year, largely due to the fall in the value of the pound, which has constructed imports dearer.

inflation

The Office for National Statistics said the cost of fuel and raw material for industry was up by 8.4% on a year ago compared with a 7.6% increased number of the 12 months to August. It said more expensive food and a smaller fall in airfares than a year ago were the main factors behind the rate rise, although clothes had come down in price.

The pick-up in inflation entails the state pension will rise by at least 3% next year because the so-called triple lock ties it to the September inflation rate, the September increased number of annual earnings or 2.5%, whichever figure is highest. Annual earnings are currently rising by merely over 2 %.

The head of inflation at the ONS, Mike Prestwood, said:” Food prices and a range of transport costs helped to push up inflation in September. These consequences were partly offset by clothing prices that rose less strongly than this time last year.

” While petroleum and fuel expenses continued to rise, overall the rates of inflation for raw materials and goods leaving factories were little changed in September .”

Paul Hollingsworth, a UK analyst at Capital Economics, said a further increase in inflation to 3.2% was likely in October, forcing Carney to write to Hammond.

” However, we don’t foresee he will be writing letters for long. Indeed, we think inflation will be back below 3% by the end of this year. And while it appears set to remain above the monetary policy committee target throughout next year, we think it will end 2018 at around 2.25% .”

Read more: www.theguardian.com

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