LONDON:The British chancellor (finance minister) Alistair Darling will announce a GBP2.40 weekly increase in the basic state pension in this autumn’s pre-budget report, after official figures yesterday showed a sharp fall in the annual inflation rate last month.

The government’s guarantee that pensions will be uprated by a minimum of 2.5 per cent a year was triggered after the latest figures for the cost of living

showed the retail prices

index (RPI) measure of inflation standing at minus 1.4 per cent in September. For a single person, the pension will rise from GBP95.25 to GBP97.65 a week next April, by which time analysts expect inflation to be higher.

The government usually increases pensions and other payments using September data but the Treasury introduced special arrangements for the elderly during periods of low inflation following a furore over a 75p a week increase in 2000.

Cheaper food and no repetition of last year’s sharp increase in energy bills were the main factors dragging down living costs last month, according to the

Office for National Statistics. The inflation yardstick used by the Bank of

England to set interest rates, the consumer prices index (CPI), dropped from 1.6 per cent to a five-year low of 1.1 per cent, but remains higher than the minus 0.3 per cent average for the eurozone.

Last year, those claiming state benefits enjoyed much bigger increases after the jump in oil prices to almost $150 a barrel resulted in RPI inflation peaking at 5 per cent in September.

Andrew Harrop, head of policy at Age Concern and Help the Aged, said: “Although the commitment to raise the basic state pension by at least 2.5 per cent will be a relief for older people, a GBP97.65-a-week pension is still not enough to ensure a decent standard of

living to people who have worked hard all their lives. While pension credit will rise with earnings, benefits linked to headline inflation, such as attendance allowance and disability living allowance, will be frozen unless normal procedures are changed.”

The government has pledged not to cut other benefits even if prices are falling and has the discretion to raise them in the pre-budget report. “New benefit levels and tax thresholds for 2010/2011 will be announced to parliament at the PBR”, a Department for Work and Pensions spokeswoman said yesterday.

“Benefits can only be uprated or stay the same. The state pension will be increased by 2.5 per cent or RPI, whichever is higher.” Economists in the City of London, the British capital’s financial district,

said the 1.1 per cent CPI

inflation rate in September would be the trough,

with higher oil prices,

the reversal of the government’s one-year cut in

VAT and a falling pound leading to steady increases. David Page, economist

at City bank Investec,

said he expected CPI inflation to top three per cent by early next year.