The Bank of England’s inflation predictions have led to speculation that the State Pension could increase by 4% next year. This could see payments go up by as much as £500
Next year, some people over the State Pension age could see their payments rise by as much as £478. This follows the Bank of England’s prediction that inflation will reach 4% in September. Due to a standing commitment to the triple lock, this could result in the State Pension increasing in line with inflation.
The triple lock guarantees that each April, State Pension payments increase by either average wage growth, inflation from the most recent September, or 2.5% – whichever is the highest. This means those who receive the State Pension could see an increase of £500 to their payments, effectively raising weekly payments from £230.25 per week to £239.46 per week (or £12,451 a year).
However, The Times reported that Chancellor Rachel Reeves could see government costs rise by £2.1 billion from maintaining the triple lock alone for the 4.5 million people who receive payments from the new State Pension.
Inflation worries are tied to the cost of living. It’s crucial to remember that the Bank of England’s inflation forecast is significantly above the target rate of 2%.
The National Institute of Economic and Social Research warned that taxes may need to be raised in the Autumn Budget to help plug a £51 billion gap in public finances.
Furthermore, the Office for Budget Responsibility highlighted that government expenditure on pensions could surge to £182 billion by the 2029/2030 financial year – a substantial jump from £142 billion. Former pensions minister Sir Steve Webb also observed that the triple lock was mounting pressure on the Chancellor.
He said: “This commitment was not only in the Labour manifesto but has also been used repeatedly to defend the changes to winter fuel payments, so seems unlikely to be broken. The challenge for all parties is how to move from the current process to something less generous, not least at a time when the state pension is still not especially generous by international standards.”
Despite worries that higher taxes could impact the cost of living for those who don’t receive the State Pension, Dennis Reed, director of Silver Voices, said: “A rise of 4% is barely keeping up with the cost of living. They [older people] are getting by on a subsistence income and 4% of very little is still very little.”
Whilst the Bank of England revealed this week that it would slash interest rates to 4%, the lowest level for more than two years, it emphasised rising energy and food costs for consumers.
It observed that food inflation climbed to 4.5% in June compared to the same period last year and could rise to up to 5.5% by December. While a peak of 4% inflation is expected in September, longer-term forecasts suggest an average inflation rate of 2.5% in 2026 and 2% in 2027.