UK inflation falls as retailers cut prices

The rate of inflation fell dramatically by 0.6% between November and December 2011.

This represents the most pronounced drop in the annual rate since April 2009, when the UK economy was arguably at its deepest point of recession.

Clothing prices fell by 2.8% over the period as retailers engaged in a battle for consumers, heavily reducing their prices in the run up to Christmas.

The Retail Price Index RPI, which also includes mortgage costs, slipped down from 5.2% in November to 4.8% in December.

Landline and mobile phone charges put further pressure on CPI inflation between November and December.

Inflation has fallen month on month since it reached its peak of 5.2% in September. Despite this, inflation remains more than double the Bank of England target rate of 2%.

The Central Bank have suggested this could change within the next 12 months though, as the impact from 2011 rises in sales, tax and energy prices fade.

Robert Gardner, Nationwide's Chief Economist expects this downward trend to continue; "As we move into 2012, inflation should continue to fall back, while interest rates are expected to remain at their current all time low of 0.5% throughout the year. This should help to ease the squeeze on household budgets and help to lift spirits in the coming months."

Inflation still remains incredibly high for UK households who have not seen a pay increase to match, leaving many with squeezed incomes and increasing personal debt.

Trade Union Congress General Secretary Brendan Barber said; “With wage settlements still trailing at around two per cent, people are still getting poorer in real terms month-by-month, and living standards are still being squeezed.”

“We need inflation falls to be matched by strong wage growth so that people have more money in their pockets to give our economy a much needed consumer-led boost.”

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2012-01-24 13:39:48 © Moneyextra.com