Welcome downside inflation surprise comes at the wrong time for millions of families in receipt of Universal Credit

Headline CPI inflation held steady at 3.8 per cent in September – defying expectations of a rise to 4 per cent – but this welcome surprise comes at the wrong time for the millions of households receiving benefits.

The September inflation rate is used to determine benefit uprating the following April. As a result, this lower-than-expected inflation figure will mean a lower-than-expected boost to living standards in the spring.

With inflation at 3.8 per cent, the Foundation calculates that the standard allowance will be uprated by at least 6.2 per cent in the spring – a boost that is worth nearly £6 per week to a single adult aged 25 or over in receipt of the UC standard allowance. While this uplift will be welcomed by many, it is smaller than the 6.4 per cent boost they would have seen had September inflation been 4 per cent, as widely forecast.

Nonetheless, any sign of inflation faltering will offer relief to British households still feeling squeezed from historic price rises over the past three years.

The data reveals a range of downward pressures on prices, which kept the rate of inflation from increasing between August and September. Food inflation – a particularly visible element of price rises for families – dropped to 4.5 per cent, down from 5.1 per cent last month. Services inflation, a key indicator of underlying inflation for the Bank of England, held steady at 4.7 per cent rather than rising as expected, as erratic air fares plummeted in September.

Despite this, the UK remains an inflation outlier with the highest headline inflation rate among G7 countries.

Finally, today’s weaker-than-expected inflation outturn is good news for mortgagors as it increases the chances that the Bank of England will cut rates early next month.

Lalitha Try, Economist at the Resolution Foundation, said:

“Price rises held steady at 3.8 per cent last month – a welcome downside surprise on inflation – but this unfortunately comes at the wrong time for millions of families receiving benefits.

“September’s inflation rate will be used to calculate benefit uprating in April next year, meaning that a single adult aged 25 and over receiving Universal Credit will see a nearly £6 a week boost to their standard allowance – less than if inflation had been 4 per cent as forecast.

“This latest inflation rate is also key for the Bank of England ahead of its next policy meeting at the start of November. Here, there was good news for mortgagors with CPI inflation coming in below expectations, making an interest rate cut more likely.”