Inflation fell to the lowest level for 36 years last month, offering a potential £275 million (€475 million) sterling windfall savings to the Treasury but only a few crumbs to pensioners.

The lower-than-forecast drop in inflation to 1.1 per cent, announced yesterday presents a dilemma for Mr Gordon Brown, Chancellor of the Exchequer. He faces the prospect of giving pensioners an increase of less than £1 a week next April - the lowest for years - at a time when the economy is growing and tax revenues are buoyant.

This month's inflation figure is the benchmark for uprating benefits. Government statisticians and private economists expect September's rise in the Retail Price Index to mirror August's performance.

This would mean a rise of only 75p a week in the basic pension. Help the Aged said that a 75p increase would be "not just unacceptable, but unannounceable".

It urged the Treasury to take advantage of low inflation and a strong economy "to produce a real rise in living standards for pensioners". An increase above the rate of inflation would allow the government to honour its election manifesto promise that pensioners would share in rising prosperity, Age Concern said.

The outlook for inflation in September is expected to be broadly similar to last month. Mr Ciaran Barr, UK economist at Deutsche Bank in London, said: "It's going to be very low, and almost certainly represents the trough for headline inflation.

"It means that benefits are getting fixed at the worst time in economic cycle for pensioners. It's also quite unfortunate because the government has got quite a bit of money at the moment," said Mr Barr.