Trebling of tuition fees has stoked inflation

More pressure put on household budgets after students' bills rocket
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The Independent Online

The controversial trebling of student tuition fees, pushed through by the coalition amid bitter protests two years ago, is set to add to the Bank of England's headaches by fuelling a fresh rise in inflation this week.

The Bank's official Consumer Prices Index inflation benchmark is set to jump to 2.5 per cent for October from a three-year low of 2.2 per cent in September. This will put more pressure on household budgets as the economy struggles to retain momentum during the final quarter of 2012.

Analysts warn a major factor in the latest rise is the near-trebling of average tuition costs to £8,385 for the current academic year. The policy was agreed in November 2010 after Liberal Democrat leader Nick Clegg broke a pre-election pledge not to raise tuition fees and lifted the cap to £9,000.

Under the final year of the old regime, average tuition fees were £3,375, according to the Office for Fair Access.

The chief economist at Investec, Philip Shaw, said the price rise would have a lingering impact on the inflation figures as three successive years of new students pay the higher fees. He said: "This is likely to add 0.2 or 0.3 per cent to inflation, an effect set to be present in the data for three years. This isn't something which will disappear next October."

Education, which also includes private school fees and adult education classes, only accounts for around 2 per cent of the overall CPI inflation basket, although the huge rise is likely to have a disproportionate effect. The last time a major rise in fees took place under Tony Blair, when costs rose from an average of £1,175 to a maximum of £3,000 in October 2006, the increase added 0.12 percentage points to the CPI.

The Bank of England called a halt to its quantitative easing money-printing programme last week, a decision driven in part at least by the worsening prospects for inflation.

Mr Shaw added: "Our forecasts point to higher grain prices and a resumption of gas and electricity tariff increases dragging inflation further away from the target. We consider that CPI inflation could be as high as 3.5 per cent by mid-2013."

The Bank is set to raise its inflation estimates in its latest set of quarterly forecasts next week to reflect the renewed pressure on the cost of living.

The Bank's Monetary Policy Committee is also set to trim back prospects for growth next year, estimated at 1.8 per cent in August, to reflect more modest City forecasts of 1.1 per cent, according to Deutsche Bank chief economist George Buckley.

He said: "The Bank has an optimistic-looking profile and we're expecting downward revisions."