Inflation rate drops to 2%

THE rate of inflation has continued to soften and in December was 2% – the Government’s target – down 0.1% on the previous month.

This is the lowest rate of CPI since November 2009 when it was 1.9%.

The Office for National Statistics said the Retail Prices Index (RPI)  figure – which includes housing costs, rose to 2.7% in December, up from 2.6% the previous month.

Phil Gooding from the Office of National Statistics said the downward trend had been led by the food sector with prices of fruit and meat rising at a slower rate than in the previous year.

He said consumers were continuing to feel the squeeze as pay deals were failing to keep pace with price rises.

Jeremy Cook, chief economist at currency exchange company, World First, said: ““This release will be good news for the Bank of England as they can breathe a tad easier about the risks posed by inflation towards their forward guidance plan.

“Furthermore, core prices – without volatile food and energy inputs – hit 1.7%, matching October’s 4 year low.

“The markets have been consistently betting that the Governor and MPC will need to raise rates sooner than they expect, as the pace of the UK recovery increased into Q3/4 2013. The lack of inflation will help stay their hand especially if the pace of job creation seen in the second half of last year also slows.

“While we are nowhere near seeing a crossover back into real wage increases just yet, a slowing rate of price increases will help the situation gradually.”