business news

UK inflation drops to 2.4 per cent

17 July 2012

Consumer Price Index (CPI) inflation in the UK fell from 2.8 per cent in May to 2.4 per cent in June, figures from the Office for National Statistics (ONS) indicate.

The cost of living is now at its lowest level since November 2009. The ONS said the largest downward pressures came from reduced clothing, footwear, food and non-alcoholic beverages.

Retail Price Index (RPI) inflation also fell from 3.1 per cent in May to 2.8 per cent in June.

A statement from the ONS said that early summer clothing sales, as well as falling fuel prices for the last two consecutive months, contributed to the inflation fall. Overall prices for these commodities fell by 4.2 per cent and 0.5 per cent respectively from May to June.

Food and non-alcoholic beverage prices also fell by an average of 0.1 per cent between May and June, compared with a rise of 0.9 per cent last year.

The biggest falls seen were in meat prices, the ONS said, with reports of weather affecting demand.

Inflation in the UK has fallen rapidly from its record peak of 5.2 per cent in September 2011.This reduction brings it closer to the Bank of England's target inflation rate of two per cent.

David Kern, chief economist for the British Chambers of Commerce (BCC), said: "If these trends continue, the squeeze felt by businesses and consumers will ease, and improved disposable incomes will boost demand in the economy. Lower global energy prices and the strong pound against the euro have contributed to these downward pressures."

Kern speculated that inflation could fall below the two per cent target in early 2013 followed by a prolonged period of above target inflation.

"While austerity measures are putting downward pressure on demand, there would be nothing wrong with allowing below target inflation to support consumer spending. With this in mind, we believe there is no need for further increases in quantitative easing," he added.