Significant boost for UK economy as inflation falls to 3.6%

Annual inflation in the UK economy has dropped to 3.6%, giving Brits some much-needed relief from rising prices.

The Office for National Statistics (ONS) has said that CPI inflation has fallen to 3.6%, down from 4.2% in December last year.

CPI inflation has now fallen by 1.2 percentage points since November 2011; the only time there has been a larger drop over two consecutive months was between October and December 2008.

RPI, the other measure of inflation, has fallen to 3.9% – down from 4.8% in December 2011 and the lowest level since February 2010.

The fall in annual inflation has largely been put down to the effects of last year’s VAT rise, putting inflation up in January last year.

But there were no upward pressures on prices this year, meaning inflation has fallen compared to last year’s figures.

“Today’s announcement comes as no surprise, especially as the effect of last year’s VAT increase begins to fall out of the annual inflation calculations,” said Richard Norman, Director of savings and investments at the Post Office.

“However, with RPI at 3.9% today, inflation is still higher than the 10 year average of 3.1% and five year average of 3.5%. With this in mind and the base rate still at an all time low, savers are finding it difficult to get a real rate of return.”

Economic pressures forcing inflation down include a drop in the price of fuel, products purchased in restaurants and cafes, tobacco, and vehicle maintenance/repair.

Industry experts are saying that the drop is good news for savers, as some savings accounts will now beat inflation.
“High inflation combined with low interest rates has particularly impacted on UK savers who have found it very difficult to gain any real returns on their savings pots,” said Kevin Mountford, Head of banking at MoneySupermarket.

“With this fall in inflation, there will be some savings accounts which will now beat inflation, and consumers need to make sure they are on the best deals possible to maximise the returns.”

You can compare savings accounts with Propertywide.

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Posted by: WarrenWilson Categories: Finance Tags: , , 1 Comment

One Response to Significant boost for UK economy as inflation falls to 3.6%

  1. avatar Rob Slack says:

    Most, if not all, of the reduction in the year-on-year “rate” of inflation was just past price spikes dropping out of the comparison. It was not a change in what is happening, just arithmetic…of no economic significance, except that if people think it is it may become so.