Inflation rate falls back to 3%

INFLATION resumed its downward path in April with the headline rate hitting 3%.

The fall will come as a relief to the Bank of England after last month’s unexpected rise in CPI inflation to 3.5% cast doubt on its projections.

The significant decline in April will also increase confidence in forecasts that inflation will return to the 2% target level in the coming months.

It also means the Governor will not have to write a 10th consecutive letter to the Chancellor as the rate is now within one percentage point of the target.

The retail prices index, which includes housing costs, fell from 3.6% to 3.5%.

The Bank of England recently said CPI inflation would remain above the 2% target “for the next year or so”.

Sir Mervyn King said the rate would stay above the government’s target owing to a “storm” in the euro zone denting recovery hopes.

Dr Brian Sloan, chief economist at Greater Manchester Chamber of Commerce, said: “The fall in inflation will be welcomed by households, though the squeeze on incomes continues as inflation remains above typical wage increases and above the Bank’s 2% target.

“Looking ahead we can expect further falls if Sterling remains strong, though this will not help our exporters. There is the prospect of further quantitative easing by the Bank of England that will keep the pressure on inflation.”