Member Article

UK inflation falls in December

The Consumer Prices Index (CPI) inflation fell to 4.2% in December, the biggest monthly fall since April 2009.

According to the Office for National Statistics, the rate dropped from 4.8% the month before, to the lowest it has been since June 2011.

The Retail Prices Index (RPI) inflation also fell, from 5.2% to 4.8%.

Lower fuel prices, cheaper clothing and footwear were all attributed as reasons for the drop, which reflected price cuts by retailers to attract Christmas shoppers.

Offsetting the drop were upward pressures from car insurance, telephone charges and food prices, which rose by 1.4%.

NECC Chief Executive, James Ramsbotham, said: “Despite the continued excellent performance of the North East’s manufacturers and exporters, the NECC Business Barometer is a demonstration that action is required to tackle short-term stagnation and a lack of business confidence due to the eurozone crisis.

“Hopefully the inflation backdrop will improve and allow the Government to extend its quantitative easing programme in the next couple of months, which is vital with domestic demand for products and services at a two-year low.

“All evidence in the fourth quarter of 2011 indicated that UK inflation had reached its peak, and a large drop was forecast during 2012.

“With inflation expected to drop further, this could be the beginning of a downward trend as energy prices fall, one of the biggest concerns cited by NECC members, and businesses reduce prices to attract customers.”

Richard Driver, analyst for Caxton FX, said: “Last month’s decline in inflation was sharp but in line with expectations, as guided by the Bank of England’s forecasts.

“Some of the temporary factors that Mervyn King correctly pointed to last year to explain soaring prices, such as VAT and energy prices, will fade away this year.

“This should see inflation continue to fall towards the official 2.0% target in the coming months and will only strengthen the case for further quantitative easing from the MPC.

“Lower inflation will take some of the heat off the consumer, though it won’t do sterling any favours.”

This was posted in Bdaily's Members' News section by Tom Keighley .