In a recent development, inflation has dropped below 2 per cent for the first time in over three years, sparking hopes for a potential interest rate cut by the Bank in November. The unexpected decrease saw the Consumer Price Index (CPI) fall to 1.7 per cent, surpassing predictions from economists.
While this news may bring relief to some, experts have raised concerns that the timing of this drop could have negative consequences for many individuals. The inflation rate plays a crucial role in determining the amount by which benefits are increased by the Department for Work and Pensions (DWP) the following April.
Typically, the September CPI figure of 1.7 per cent is utilised to calculate the increase in working-age benefits for the upcoming year. This rate represents a decline from August’s 2.2 per cent, with experts forecasting a rise back to this level in October as energy prices adjustments drop out of the 12-month calculation.
Research conducted by the Resolution Foundation think tank indicates that a typical low-income family with two children receiving Universal Credit stands to experience a £253 annual payment rise come April. However, if either the August or October rate were to be applied instead, the increase would amount to £327 (£74 more).
Economist Lalitha Try from the Resolution Foundation expressed concerns over the situation, stating, “This temporary fall is badly timed for millions of low-to-middle income families as it will result in a lower increase in their benefits next year.” The ongoing rise in everyday costs compared to incomes has created a cost of living crisis in the UK, impacting millions of households.
Iain Porter, Senior Policy Adviser at the Joseph Rowntree Foundation, highlighted the pressing need for support for families facing hardships, emphasising that the current level of Universal Credit is insufficient to shield families from economic challenges. The upcoming Budget announcement is seen as a critical opportunity for implementing urgent measures to assist families struggling to afford essentials amidst rising living costs.