The UK’s base rate of interest was held at 5.25% in September as the rate of inflation fell to 6.7% in the year to August 2023.

The fall in the rate of inflation surprised economists, who expected it to rise. The Consumer Prices Index (CPI) fell from 6.8% in July to 6.7% in August.

Slowing food price increases helped drive the fall, the Office for National Statistics (ONS) found, particularly prices for eggs, milk and cheese.

Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI), said:

‘Inflation fell again in August, defying expectations of a slight uptick. We expect inflation to continue falling over the rest of this year, but the recent uptick in global oil and domestic fuel prices means that the path back down may now be bumpier.’

Following the fall in the rate of inflation, interest rates were left unchanged at 5.25% by the Bank of England’s Monetary Policy Committee (MPC).

The MPC had previously raised rates 14 times in a row to tame inflation, leading to increases in mortgage payments but also higher savings rates.

Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:

‘Businesses will be giving a cautious welcome to today’s decision by the Bank of England to hold the base rate at 5.25%. Constant hikes in the cost-of-borrowing have had a hugely detrimental impact on the firms we represent.

‘Companies need reassurance that decisions on interest rates are not knee-jerk reactions to the most recent inflation data.

‘We need clear direction from decision makers, creating a roadmap for business that really boosts confidence and investment.’

Internet link: Bank of England website ONS website CBI website BCC website

The UK’s annual inflation rate fell to 6.8% in July, down from 7.9% in June, according to the latest data from the Office of National Statistics (ONS).

It is the smallest increase in the cost of living since February 2022.

A fall in gas and electricity, as well as a slowing down in the increase of food prices, are the major drivers behind the inflation rate decrease, according to the ONS.

However, core inflation, which strips out volatile items such as fuel and food remained unchanged at 6.9% in July while service sector inflation rose from 7.2% to 7.4%.

Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:

‘While a drop in inflation provides some comfort, the figures show less of a drop in inflation than hoped for and will renew fears of a wage-price spiral, and of yet more base rate hikes in future.

‘The worry now is that rising wages ignite a fresh wave of inflation in September, which will threaten the momentum from June’s GDP growth.

‘The cost of doing business crisis still has a grip on the small business community, as prices for many key inputs, from energy to components and raw materials, remain far above where they were a year ago.

‘Any reduction in inflation is good news, but the huge toll that spiralling prices have inflicted is still being keenly felt by small firms.’

Internet link: ONS website FSB website

The frozen Savings Allowance combined with rising interest rates will push over one million taxpayers into paying tax on their savings this tax year, according to research by investment platform AJ Bell.

In the 2023/24 tax year it is estimated that over 2.7 million individuals will pay tax on interest, up by a million in a year.

This year’s predicted total includes nearly 1.4 million basic rate taxpayers, a figure which has quadrupled in just four years, AJ Bell’s research found.

Individuals pay tax on interest they earn on savings that exceeds the personal Savings Allowance, which currently stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get no exemption and pay tax on all interest they receive.

Laura Suter, Head of Personal Finance at AJ Bell, said:

‘These figures highlight just how many taxpayers are facing a tax bill for their savings interest this year – a huge leap when compared to last year. The combination of higher interest rates and people having shunned ISA accounts in recent years means that the number paying tax on their savings has more than tripled in the past four years.

‘Rising rates and a frozen personal Savings Allowance means some individuals are being taxed despite having relatively modest pots of cash set aside for a rainy day. To add insult to injury, because inflation is so high, they aren’t even making a real return on their money – yet they are still being taxed.’

The UK’s rate of inflation fell to 7.9% in the year to June while the country’s economy shrank in May, according to the latest Consumer Prices Index (CPI) published by the Office for National Statistics (ONS).

The inflation rate is currently at its lowest annual rate since March 2022, the ONS said.

Price rises have slowed by more than experts anticipated. According to the ONS, falling fuel prices helped the rate of inflation to drop, and food prices rose less quickly when compared to June 2022.

Core inflation also fell from 7.1% to 6.9%, the data showed.

Meanwhile, the UK economy contracted by 0.1% in May following growth of 0.2% in April, ONS data showed.

The rising cost of living and higher interest rates have been squeezing households and businesses, the ONS said.

It said the manufacturing, energy and construction sectors fell in May, along with sales at pubs and bars.

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said the figures provide ‘further evidence of the precarious state of the UK economy’.

He added:

‘While businesses have been incredibly resilient in stomaching multiple waves of economic crises, our latest Quarterly Economic Survey shows that most firms are still not reporting improved business conditions.

‘Positively, slightly fewer businesses report inflationary pressures, but interest rates have grown as a concern for businesses. We are starting to see more businesses report rising borrowing costs, but we are yet to understand the full impact of rising interest rates.

‘Businesses are operating in a climate with a high degree of uncertainty, and government and Bank of England policy both need to be very responsive to developments.’

Internet links: ONS June inflation data ONS May GDP data BCC website

HMRC has extended the voluntary national insurance contributions (NICs) deadline until 2025.

Extending the voluntary NICs deadline until 2025 will give people more time to consider whether paying voluntary contributions is right for them, and also ensures individuals do not miss out on the possibility of boosting their State Pension entitlements.

The original deadline was extended to 31 July 2023 earlier this year. HMRC said the new extension allows thousands more people to add extra years to their national insurance record.

HMRC stated that all relevant voluntary NIC payments will be accepted at the rates applicable in 2022/2023 until 5 April 2025.

Victoria Atkins, Financial Secretary to the Treasury, said:

‘People who have worked hard all their lives deserve to receive their State Pension entitlement, and filling gaps in national insurance records can make a real difference.

‘With the deadline extended, there is no immediate rush for people to complete gaps in their record and they will have more time to spread the cost.’

Internet link: HMRC press release