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UK inflation falls to 1.9% in JanuaryBack

InflationThe UK’s inflation rate, as measured by the consumer prices index, fell to 1.9% in January.

The rate fell below the Bank of England’s 2% target for the first time in more than four years.

The fall is likely to underline the Bank of England’s message that there is no rush to raise interest rates.

Inflation as measured by the Retail Prices Index rose to 2.8% from 2.7% in December, the Office for National Statistics (ONS) said.

The lower inflation was in large part due to a fall in the cost of recreational and cultural activities, including falling DVD prices and lower entrance fees to attractions.

Inflation is below target. A year or so ago that would have seemed a highly unlikely development. Inflation was close to 3% for much of the first half of 2013.

There was speculation that one of the first tasks of Bank of England Governor Mark Carney when he arrived in his new job would be to write to the Chancellor explaining why inflation was more than one percentage point above the target. That did not happen.

Instead the Governor has watched inflation glide down to 2% and, now, just below. Hikes in gas and electricity prices did not in the end rock the inflation boat, although that was helped by government initiatives to ease the burden of green obligations.

The question now is when wage increases start overtaking price rises.

Most economists expect that to happen from the second half of this year. Consumers, who have suffered a squeeze on their spending power, may feel they will believe it when they see it.

Discounts on furniture and household goods, and also lower alcohol and tobacco prices, also had an impact, the ONS said.

Prime minister David Cameron tweeted that the figures support the government’s economic strategy.

“Today’s fall in inflation is more evidence our long term economic plan is working,” Mr Cameron tweeted. “We want to ensure a secure future for hard-working people.”

Labour said that the fall in inflation would be unlikely to have much of an impact on working people.

“This small fall in the inflation rate is welcome, but with prices still rising much faster than wages the cost-of-living crisis continues,” shadow Treasury minister Cathy Jamieson said.

 

Posted by Sue Robinson on 21/02/2014