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Tuesday, October 12, 1999 Published at 15:22 GMT 16:22 UK

Business: The Economy

UK inflation holds steady

Falling women's clothes prices helped keep inflation down

The UK headline inflation rate in September remained unchanged at 1.1%.

The figure means that next year's increase in pensions and social security payments - which are calculated with reference to the previous September's headline rate - will be just 1.1%.

The BBC's Rory Cellan-Jones:"There'll be growing pressure to find more for pensioners"
So the basic state pension for a single person - which now stands at 66.75 - will rise by just 73 pence to 67.48 next April.

The Social Security Secretary, Alistair Darling, said last month that he would take a number of factors into account when deciding on the pensions increase - and would consider an above-inflation award.

The Office for National Statistics said headline inflation rose by 0.4% compared to August - against expectations of 0.5%, which would have pushed the annual rate up to 1.2%.

[ image: Social Security Secretary Alistair Darling:
Social Security Secretary Alistair Darling: "Will consider bigger pension increase"
Underlying inflation - which excludes mortgage interest payments - was also unchanged at 2.1%.

The monthly increase in the underlying rate was 0.4%. It, too, had been expected to rise by 0.5%, which would have lifted the annual rate slightly to 2.2%.

The euro-zone measure of inflation - the harmonised index of consumer prices - was down slightly at 1.2% in the year to September, compared to 1.3% in August.

The BBC's Peter Morgan: "Inflation is down but not out"
With headline inflation still at a 36-year low and underlying inflation comfortably below the Government's 2.5% target, today's figures will be cited as evidence by industry and unions in their calls for the Bank of England not to raise interest rates again.

But most economic analysts are expecting the Bank's Monetary Policy Committee to recommend another increase in the cost of borrowing before the end of the year.

Pensions protest

Help the Aged says pensioners are angry about the meagre pension increase which will result from today's figures.

Barbara Castle: "I don't like the government's attitude of targeting the 'poorest' pensioners"
But the real complaint of the pensioners lobby is that for nearly two decades pensions have risen in line with prices and not earnings.

In 1980, the state pension was equivalent to 19% of average earnings. Then the link between pensions and earnings was broken and by last year the figure had fallen to 15%.

By 2040, it's forecast to have fallen to 8% of the average wage. So the biggest complaint of pensioners is that they're falling further and further behind the working population.

Ups and downs

The largest downward effect on the index came from price changes for non-seasonal food. September saw retailers - in particular supermarkets - offering a wide range of special offers and price reductions in response to strong competition.

A further downward effect came from price changes for clothing and footwear, in particular women's outerwear, where price recoveries from this year's summer sales continued to be less than last year.

The largest upward effect came from price changes for seasonal food. In particular, price increases for lettuces, tomatoes, and grapes were in contrast to price falls last September.

This year, there were reduced supplies of these crops as weather conditions affected produce from southern Europe.

Reaction to the figures

Pamela Webber of the British Retail Consortium said: "Our own figures on inflation showed prices on goods sold through shops actually fell 0.4% over the last year. They will have contributed to today's low figure.

"But, on the other side, you have got petrol prices which have risen more steeply. So, overall we have come out the same as last month."

Jeremy Hawkins of Bank of America said: "The UK inflation data were a pleasant surprise. This should bring some relief after the disappointing producer prices figures released yesterday.

"The area of concern will remain the contrast between goods and serivces prices. The data should tend to dampen down fears abut a November increase in interest rates - particularly if the average earnings figures tomorrow slide to 4.4% as we anticipate."

Neil Parker of the Royal Bank of Scotland said: "The data again suggest that inflation on the High Street is very muted. Moreover, the rebound in household goods and clothing and footwear prices was more subdued than in previous years."

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