State pensions to increase by 3% as inflation hits highest rate since 2012

THE state pension will rise by 3 per cent next year after inflation hit a fiveyear high.

Pensioners will see their weekly payment – which is linked to overall price rises – go up by about £5 in April to £164.

The Consumer Price Index hit 3 per cent in September, up from .9 per cent in August, to its highest level since 01 , official figures revealed yesterday.

The hike was fuelled by increases in the cost of food, transport and recreation, the Office for National Statistics said. It means households face a squeeze on their real incomes as price rises outpace earnings. The value of benefits, including tax credits, will be eroded too.

The increase will add to pressure on the Bank of England to put up interest rates in coming months.

The Bank’s Governor Mark Carney yesterday blamed higher inflation on the fall in the value of the pound, and suggested it would peak this month or next above 3 per cent. His target is per cent, and if prices grow by more than 3 per cent he will have to write to Chancellor Philip Hammond to explain why.

In evidence to the MPs on the Treasury select committee, Mr Carney said he thought it would be ‘more likely than not that I would be writing on behalf of the Monetary Policy Committee a letter to the Chancellor’.

He said interest rates were likely to rise ‘in the coming months’, seen by some commentators as a softening of the bank’s position. Mr Hammond insisted the economy was still strong, saying ‘there is great potential to exploit the underlying strength of the UK economy and boosting productivity is the way to turn those strengths in to real wage growth’.

A Treasury spokesman added: ‘We’ve frozen fuel duty, doubled free childcare for nearly 400,000 working parents and cut income tax for 30million people.

‘Increases to the National Living Wage are also delivering the fastest pay rise for the lowest paid in 0 years.’

The state pension is linked to last month’s Consumer Price Index rate, meaning the amount dished out will rise by 3 per cent next year.

The triple-lock on pensions means recipients are guaranteed a minimum increase each year by whichever is the highest of September’s inflation rate, average earnings growth or .5 per cent. But working-age benefits are frozen in cash terms until March 0 0. The pension rise will prompt calls for ministers to do more to help the young.

‘Turn these strengths into wage growth’