The latest inflation figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) measure of price inflation remaining at 3.1%.
The Retail Prices Index (RPI) measure of price inflation, which includes housing and mortgage costs, fell slightly from 4.7% to 4.6% for the year to to September 2010.
Inflation figures published in September are particularly important as a range of benefit and allowance increases are usually linked to these numbers.
The annual Individual Savings Account (ISA) allowance for 2011/12 is due to be linked to the increase in RPI. This should see the allowance increasing from £10,200 to £10,680 – an increase of £480.
It should get rounded up slightly to ensure it can be easily divided by 120, and therefore monthly ISA contributions will be a whole number.
This will mean that investors can put up to £5,340 into a cash ISA in the next tax year, and the balance of their unused allowance up to £10,680 into a stocks and shares (investment ISA). We await confirmation from HM Treasury that the ISA allowance will actually be extended.
The publication of the latest inflation figures included details of a rise in the prices of clothing and footwear. This was attributed to discounted summer fashion ranges giving way in the shops to more expensive new autumn ranges.
The CPI measure of inflation has remained above the government target of 2% for ten months now. A sustained higher level of price inflation is not expected to prompt the Bank of England to increase interest rates, not yet anyway.
In fact, the Monetary Policy Committee (MPC) needs to balance economic recovery with controlling inflationary pressures in the economy.
We feel that they are unlikely to risk tipping the UK back into recession with a rate hike to control inflation, particularly when the prospect of a further round of quantitative easing is still on the cards.
