UK Inflation Falls to 3.1%

UK Inflation Falls to 3.1%

Consumer price inflation dropped sharply in December to an annual rate of 3.1% from November’s figure of 4.1%.

The main factor for this sharp fall in inflation is the cut in VAT from 17.5% to 15%, announced in the pre-Budget report on 24 November, the Office for National Statistics said.

It was predicted that the rate would of fallen faster however this was prevented due to high food, gas and electricity prices.

The headline Retail Prices Index (RPI) measure fell to 0.9% from November’s 3% rate, the biggest fall in 28 years. RPI takes account of mortgage costs and therefore the drop was reflecting the fall in mortgage rates

While Consumer Prices Index (CPI) has dropped sharply from 5.2% to 3.1% it is still well above the government’s target rate of 2%.

Many economists had expected it to fall even further in December, with a consensus of about 2.7%.

Once concern over the falling inflation is prospect of deflation by the year end. Consumers may be put off making any purchases if they believe that prices will be lower in the future.

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