Cheaper food, reduced prices for computer games & smaller increases in the price of clothing & shoes contributed to a fall in the cost of living rate from 4.4% to 4%
The latest figures from the Office for National Statistics this week show the first fall in the annual inflation rate since last July. It had been highly anticipated that inflation would creep towards the 5% mark over the coming months fueling the possibility of an early rise in interest rates when the monetary policy committee next meet to determine the Bank of England interest rates in May.
“These figures should help to sound the death knell for a May rate hike, especially given the current woes on the high street,” said Philip Shaw, economist at Investec.
But Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said: “These figures represent a massive surprise on the downside and will no doubt be greeted with relief by the majority of the MPC. Indeed, with the MPC having forecast an inflation rate of 4.1% in Q1, for the first time in quite a while their forecast won’t be out of date within a couple of months of being published.
“We may still see CPI inflation edge up further over the months ahead, as the effects of further rises in oil prices feed through. But the dreaded 5% rate that we had once feared now looks a fair way off and is unlikely to be realised. That said, this doesn’t alter the fact that households will still see a substantial fall in their real incomes throughout this year – this just eases the pressure a little.”
News of the fall in inflation rates follows on from the report that The International Monetary Fund (IMF) has cut its 2011 growth forecast for the UK economy to 1.75%, its third downgrade in a year – a result of spending cuts it regards as necessary having a dampening effect on consumer demand.
Figures released from British Retail Consortium – BRC – last week show that Britain’s retailers are experiencing the toughest trading conditions for at least a decade and a half as a result of curtailed consumer spending.
Categories : Inflation, Interest Rates