According to figures released today from the Office for National Statistics (ONS), inflation in the UK dropped to 4.2% in December.
The consumer prices index rate fell from 4.8% in November and was contributed to the slowdown of prices for food, petrol, gas and clothing.
“The largest downward pressures to the change in CPI annual inflation between November and December came from petrol, gas and clothing,” said the ONS.
The CPI rate is still more than twice the target of 2% which the Government set the Bank of England, but it has started to steadily fall from its high of 5.2% in September 2011.
If the CPI rate continues to decline, as predicted by the Bank of England, then it is likely that there will be no increase in the interest rate for a few years. The think-tank Cebr has forecast that the interest rate will continue at its lowest rate of all time until 2016.
However, the decrease in inflation rates will lead to the rounds of quantitative easing expected from the Bank to announce at its next monetary policy meeting next month.
The British Retail Consortium (BRC) announced earlier this month that the shop price inflation rate fell from 2% in November to 1.7% in December—the lowest it has been for 16 months.
The rate of inflation for non-food items was also at a two year low. In December it was 0.3% a fall from the 0.8% in November. This decrease was due to price cuts on electrical items, clothing and shoes, with many items cheaper to buy than the previous year.
However, despite the increase in supermarket discounts over December, food prices still rose by 4.2%, slightly up on the 4% figure for November.
This came as a shock to many economists, as many of the big supermarkets had staged prices wars with each other. Tesco had announced a price cutting campaign of £500 million and Asda guaranteed to its customers that they would be 10% less than other supermarkets. Sainsbury’s joined in the price war by matching branded products prices.
The trend of falling inflation rates is likely to continue this month, as this will be the first month where the figures are not inflated by the increase in VAT last year. Recently announced gas and electricity price cuts will also help to reduce inflation rates over the coming months.
