Decline in UK inflation Rate
by Kirsty on Feb.18, 2009, under Uncategorized
In January 2009 Consumer Prices Index (CPI) inflation fell to 3%, in December 2008 the CPI was 3.1%. For the last four months the CPI has fallen from a high of 5.2% in September, to 3%.
As well as the falling energy prices, the reduction in VAT from 17.5% to 15%, announced in the pre-Budget report in November, also had an effect. A zero or negative RPI could result in the extraordinary occurrence of average pay increases also falling towards zero with the current strain on government finances some are calling for a freeze on public sector pay.
The decline in CPI wasn’t expected – the consensus forecast among analysts had been for an annual rate of 2.7%. the decline in energy bills were slightly offset by rises in the price of household equipment, such as furniture, and alcohol, clothing and footwear. the smaller than expected drop was also due in part to a reluctance by retailers to slash prices further after heavy discounting in December. One of the reasons why the Bank of England delayed cutting interest rates last year was concern over inflationary pressures in the economy; the bank has already cut interest rates to 1% in an attempt to stimulate the economy. They believe that CPI inflation will drop to 0.5% this year and will remain below its 2% target for two years.
