The drop in the CPI rate is said to be the biggest monthly fall since April 2009 and the lowest since June 2011; whilst the Retail Price Index (RPI) inflation, which includes mortgage interest payments, also fell to 4.8% from its previous 5.2%.
According to the ONS the drop in both the CPI and RPI is due to lower fuel prices and cheaper clothing, with sharper falls expected in the coming months.
One economist has said of the drops: “The increase in VAT from 17.5% to 20% last January should fall out of the year-on-year comparisons, which on its own should shave 1% or more off the annual rate.
“At the same time, food, clothing and energy prices are now all falling, suggesting a broad-based lowering of price pressures, which should have a marked downward effect on the headline rate of inflation in coming months.”
The falling inflation is expected to ease the squeeze on consumers’ spending power, whilst at the same time giving the Bank of England leeway to extend its quantitative easing (QE) programme to stimulate the economy.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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