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Inflation Falls

Written By On 18/02/2014

For the fifth month in a row, inflation was less than analysts had anticipated according to the consumer prices index presented by the ONS. It now stands at 1.9 per cent for the twelve months up to last month.

The Bank of England's aim was to get the rate down to at least 2 per cent and it is now the lowest it has been since November 2009.

A major contributory factor to the that was heavy price reductions handed out by retailers over the Christmas period. particularly household and furnishing items. Lower tobacco and alcohol prices helped the figure move down too.

Energy companies cutting their rates added to the decreased rate thanks to the Government's new environmental levy reduction. It should have even more of an effect in the near future, plus further cuts by utility companies are expected soon.

The GBP has also gained momentum and strengthened, thus bringing down the costs of imports. However, it will have an adverse effect for exports.

The pound had been going up steadily until the beginning of last week as investors speculated UK interest rates would soon be increased. But after Mr Carney's announcement, it depreciated a little against the major curencies.

Now many economists are forecasting inflation will go as low as 1 per cent by the end of 2014. This should help alleviate any pressure the Bank of England may have come up against to raise interest rates.

Trevor Greetham from Fidelity is in agreement with them and goes one step further by praising the BOE.

The company's asset allocation director says:

I'd argue underlying inflation has rarely been far from target and the Bank of England has done a great job in difficult circumstances made worse by Government actions and by events in China.