Inflation remains at 2.2 per cent, raising expectations that the Bank of England will press pause on future rate cuts and review them later in the year.
According to industry experts, a pause on rate cuts is likely due to persistent core and services inflation and weak economic growth. Forecasters expect future rate cuts may be gradual, with a potential cut in November predicted.
Meanwhile, experts say persistent inflation could eat into future state pension increases, and worsen energy costs, highlighting the need for improved financial planning and advice for retirees.
Standard Life retirement savings director Mike Ambery says: “Each April the state pension rises by the higher of the previous year’s September inflation (announced in October), the average of UK wage increases between May and July, which has come in at 4 per cent, or 2.5 per cent. Unless an unexpected shock drives price rises significantly higher than forecast we’re unlikely to see a situation where the inflation trigger rather than 4 per cent average earnings ends up determining the triple lock, however it’s worth noting that as inflation creeps further above the Bank’s 2 per cent target it will erode the real impact of next year’s boost for pensioners.
“With price rises around the 2.2 per cent mark, the real boost for pensioners will be 1.8 per cent – with inflation at target, they would be 2 per cent better off.
“This winter’s price rises are likely to be heavily driven by rising energy costs. Next year, like this year, there will no longer be a universal winter fuel allowance and so if energy prices follow the same pattern in 2025 they could further erode the triple lock boost. Pensioners on lower incomes and most dependent on the state pension for income are likely to feel the greatest impact of this – we would urge anyone of state pension age and on a low income to check their eligibility for pension credit on the government’s online Pension Credit calculator.”
Fidelity International investment director Tom Stevenson says: “The latest inflation data delivered another headache for the Bank of England’s rate setters. While the headline rate remains unchanged at 2.2 per cent, close to the Bank’s target, core inflation remains sticky, up from 3.3 per cent to 3.6 per cent. Inflation in the important services side of the economy, driven in large part by wage growth, rose from 5.2 per cent to 5.6 per cent.
“The mixed messages in today’s inflation data underline the challenge the Bank of England faces in setting monetary policy in a less stable and predictable environment for prices. With the new Labour government pushing for higher growth and productivity, and without the stabilising forces of globalisation, cheap energy and EU membership, inflation is likely to be more volatile in future.
“However, the direction of travel for UK interest rates looks set even if the timing of rate cuts is not. With growth stagnating over the summer and headline inflation remaining close to target, the next cut looks nailed on for November, even if it does not come tomorrow. That should keep a lid on the pound, whether the Federal Reserve opts for the expected quarter point rate cut this week or the jumbo half point cut that remains a possibility.
“For investors, the window of opportunity to lock in higher interest rates on cash is starting to close.”
My Pension Expert policy director Lily Megson says: “Inflation remaining sticky as it wavers above target levels is a reminder that the financial pressures faced by savers aren’t going anywhere just yet. For those in or approaching retirement, who have contended with rising costs eroding the purchasing power of their pension pot, this only reinforces the need for careful financial planning.
“Under-saving for retirement is a major issue, and now more than ever, it’s crucial that retirees and savers have access to the right tools and guidance. The government must finally prioritise financial education and ensure that independent financial advice is readily accessible, so people can reposition themselves during this period of uncertainty with confidence and stay on track to meet their retirement goals.”