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Home / Business / Economy / Official Cash Rate

UK inflation falls to 4.1pc

By Sean O'Grady
Independent·
17 Dec, 2008 03:00 PM2 mins to read

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KEY POINTS:

Inflation in Britain plunged for a second month in a row yesterday as the Governor of the Bank of England, Mervyn King, said the weakness of the economy and the continuing reluctance of the banks to lend meant that "additional measures will probably be required to underpin lending to households and companies".

Ministers are expected to announce further state guarantees for bank lending in the next few days or weeks.

The Office for National Statistics reported yesterday that the annual rate of CPI inflation, the measure targeted by the Bank of England, fell from 4.5 per cent in October to 4.1 per cent in November. The older RPI measure, which includes the impact of lower mortgage interest payments and slumping house prices, fell by even more, from 4.2 per cent to 3 per cent - the sharpest slide since 1991.

Almost all of the fall in inflation was due to fuel prices, which fell 8.3 per cent on the month. The price of a litre of petrol stood at 95.2p ($2.56) in November, down by 9.3p on last year. Food inflation, though, rose slightly, from 10.2 to 10.6 per cent. Although the drop in inflation was slightly less than analysts predicted, all agreed that by next year prices would actually fall on a consistent basis for the first time since the early 1930s, and that the Bank of England
would cut rates from 2 per cent now to close to zero, unprecedented in its 314-year history.

Such a deflation in the price level and the accompanying boost in purchasing power should prove a boon to workers who will be hard pushed to see large pay rises next year, and may help to keep unemployment lower than it otherwise would be.

Many economists see the prices themselves falling by 3 or 4 per cent a year by next northern summer.

- INDEPENDENT

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