Money blog: Shock fall in inflation will impact pensions, benefits and interest rates (2025)

London Underground workers, including drivers, are walking out next month in a row over pay.

Finn Brennan, Aslef's full-time organiser on London Underground, said managers had refused to discuss any reduction in the working week or paid meal relief "to bring Underground drivers in line with those on the Elizabeth line and London Overground".

Aslef said a pay offer of 3.8%, plus a variable lump sum, would result in Tube drivers staying on a lower salary than those on other Transport for London services while working longer hours.

The union said train operators and management grades would strike on 7 and 12 November, and engineering drivers would not book on for 24 hours from 6pm on 1 November.

Elsewhere, the Rail, Maritime and Transport union (RMT) announced its members, including signalling and station staff, would walk out on different days between 1 and 8 November after rejecting a "wholly inadequate" pay offer.

The hospitality sector faces paying an extra £914m in business rates next year if help is not announced in the budget, the industry's leading trade body has warned.

UKHospitality said businessesin Englandwere already facing a £866m increase due to a 75% business rates relief coming to an end next year.

But, today's inflation figures mean they may need to pay an extra £48m on top of that, it said.

Business rates rise every year based on September's inflation figure, which was released today and came in lower than expected at 1.7%.

For a large pub or restaurant, the two hikes combined would mean a £33,500 increase in rates bill, UKHospitality added.

At the moment, properties that are used for retail, hospitality or leisure purposes in England can each claim a maximum discount of £110,000 per year, or £315,000 over three years, under the Retail, Hospitality and Leisure Business Rates Relief scheme.

But this is due to end in March 2025.

"These inflation figures confirm that hospitality is set for an eye-watering £914m tax bill in April, if the chancellor doesn't act at the budget," Kate Nicholls, chief executive of UKHospitality, said.

"Business rates must be addressed, or venues at the heart of communities will see their rates bills quadruple and find themselves making awful decisions about whether to shorten hours, close more days, lay off staff, or even close their doors for good."

We've only talked about England in this post - that's because business rates are devolved to each UK nation.

After publishing a guide yesterday to the taxes that might rise in the budget, and today's inflation data, we've had hundreds of comments that illustrate how many people are still struggling.

Here's a selection of those, from people at both ends of the age spectrum, and some general views on the 30 October budget...

I'm 23, how do you expect me to be able to buy my own home, live a relatively normal life when everything's going up? We're living pay check to pay check. Some people can't even afford to put food on their table because they have to pay so much for fuel to get to work.

Stephanie M

I retired a year ago, I live on the state pension and two very small private pensions which I pay tax on. I'm very worried about my future. I have health issues. Why is no one in power realising all pensioners are not rich? A higher threshold for pension credit would help.

Susie

Is this government really going to tax wealthy people like myself? Because I'm in total agreement with it if they do, and do it the right way. FGS let's get this country back on its feet and thriving again.

Michelle Pickles

Surely by putting up employer NI for business, it will mean the cost of goods and services will rise? I cannot see businesses reducing their profit margins. So they are not taxing the working man.. but are putting up the price of goods.

Woody3090

Raise the personal allowance to 20k for pensioners, they have paid in enough tax, it's scandalous that they haven't done this!

Monkee knows best

Seems to me the government is aware that many OAPs will unfortunately pass away this year due to its decision to scrap the winter fuel allowance. Shameful Labour!

Damien

We've had some commentary on this from strategic advisers at McKinsey & Company.

Associate partner Matthew Chapman says that "on the surface" the answer is yes - but that volatile factors are still in play.

He said...

"Essentials - which make up the biggest share of consumer spending – have seen price increases slow dramatically.

"The cost of electricity (-19.5%) and gas (-22.8%) declined sharply, offering a welcome boost to households' purchasing power. At the same time, food and non-alcohol beverage prices rose slightly by 1.8%, versus an August rise of 1.3%, but remain below the vital 2% target.

"The big question now is whether inflationary pressures could build again.

"Housing costs are continuing to run at more than quadruple the current rate of inflation – rental prices and owner-occupied housing costs both increased by 7.2%."

Oil prices and October's energy price cap rise are other factors that could be inflationary, Mr Chapman said.

"The underlying forces driving price fluctuations remain complex. And over the coming months, there will be a need to remain vigilant. Closely monitoring economic signals and consumer demand will support businesses in responding to any change in circumstances."

We reported earlier that a long list of benefits are likely to rise just 1.7% next April after inflation came in lower than expected.

September's inflation data is usually used to set the annual rise in many benefits, including universal credit, as well as pension and tax credits.

The government has yet to confirm this will be the case in 2025 - we expect an announcement in the budget on 30 October.

The Resolution Foundation says a typical low-income family with two children in receipt of universal credit would see their annual benefit rise by £253.

The thinktank worked out that using August's 2.2% figure would have resulted in a £327 rise.

Inflation is expected to rise in future months, exacerbating what the foundation calls the "bad timing".

Lalitha Try, economist at the thinktank, 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."

State pensions are protected by the triple lock, which means today's inflation data can be disregarded for those.

Instead, the 4.1% average wage growth figure will be used to set April's hike.

Ms Try added: "The government needs to address the age divide in benefits which has left working-age support fall further behind rising wages and living standards."

By Jon Craig, chief political correspondent

The "black hole" just got deeper. Or so the chancellor claims.

After telling us for weeks that the funding gap was £22bn, Rachel Reeves says it's almost double that: £40bn. Fact? Or political propaganda?

She's told the cabinet the £22bn "black hole inheritance" from the Tories needs to be filled "just to keep public services standing still".

And Sir Keir Starmer told ministers – at a "political cabinet" with no civil servants present - that the budget would see "tough decisions so we can invest in the future".

In other words, if the chancellor is to avoid big spending cuts in front line services like health and education, there'll have to be more unpopular tax rises.

The timing of this apparent deepening of the "black hole" is highly significant. It comes as Labour faces accusations of breaking its manifesto pledge not to increase national insurance.

The new £40bn figure has emerged just hours before Sir Keir faces Rishi Sunak at prime minister's questions and a potentially embarrassing onslaught over the national insurance tax hike.

A conspiracy theorist might even suggest the new £40bn claim was a cynical attempt by Downing Street to divert attention from the row over the PM meeting Taylor Swift and the star's blue-light escort.

Shadow chancellor Jeremy Hunt has already claimed the £22bn figure is a lie. But then George Osborne accused Labour of leaving a £12bn black hole when he became chancellor in 2010.

It's all spin, of course. We should be used to it by now. Reeves also told the cabinet the government can't turn around 14 years of decline in one year or one budget.

Yet at the same time she said the budget would "protect working people, fix the NHS and rebuild Britain". That's an ambitious boast, if the "black hole" really is £40bn.

By Faye Brown, political reporter

Rachel Reeves is looking to fill a £40bn black hole in the country's finances, Sky News understands.

According to people close to the budget, the gap in funding identified by the chancellor is more than twice what was previously thought.

Ms Reeves has previously said the Conservatives left the new government with a £22bn shortfall, requiring "tough decisions" likeaxing the winter fuel payment.

This has led to speculation Labour may introduce measures such as a national insurance increase for employers to raise more cash.

According to the Financial Times, the £40bn figure represents the funding the chancellor needs to protect key government departments from real terms spending cuts, cover the impact of the £22bn overspend from the last administration and build up a fiscal buffer for the rest of parliament.

The paper said she was eyeing big tax rises to patch up the NHS in particular.

Read the full story here...

As we know, interest rates are kept high to control inflation.

The news that inflation has slowed more than expected has prompted markets to price in an even bigger chance of a base rate cut when the Bank of England's Monetary Policy Committee next meets on 7 November.

The chances jumped from 80.1% to 89.9% this morning.

A cut would take the base rate - which influence mortgage and saving rates - to 4.75%.

Interestingly, market expectations for another cut in December are now at 76.8%.

Suren Thiru, economics director at ICAEW, said: "Though the stars are aligning for a November rate cut, the upcoming budget is the final hurdle as rate setters will want to assess the inflationary impact of any measures announced before loosening policy again."

The pound has fallen against the dollar after inflation data eased more than expected in September.

The pound was down more than 0.5% on the dollar to $1.29, taking it to its lowest level in almost three months.