UK Inflation has reached 2% in December, the target rate set by the Government, and the lowest rate as measured by the Consumer Prices Index (CPI) since November 2009 when it was 1.9%.
The Office of National Statistics (ONS) said the downward trend had been led by the food sector with prices of fruit (especially of bananas and grapes) and meat rising at a slower rate than in the previous year. It also stated that consumers were continuing to feel the squeeze as pay deals were failing to keep pace with price rises.
Jeremy Cook, chief economist at currency exchange company, World First, said:
“This release will be good news for the Bank of England as they can breathe a tad easier about the risks posed by inflation towards their forward guidance plan.
“Furthermore, core prices – without volatile food and energy inputs – hit 1.7%, matching October’s 4 year low.
“The markets have been consistently betting that the Governor and MPC will need to raise rates sooner than they expect, as the pace of the UK recovery increased into Q3/4 2013. The lack of inflation will help stay their hand especially if the pace of job creation seen in the second half of last year also slows.
“While we are nowhere near seeing a crossover back into real wage increases just yet, a slowing rate of price increases will help the situation gradually.”
Discounts in the run up to Christmas also helped lower the inflation rate, economists said, with the prices of toys and computer games falling at a faster rate last month than a year ago.
However, hikes in gas and electricity bills as well as rising petrol prices had an upward effect on inflation, the ONS said.
The ONS figures were published the day before supermarket chains Tesco and Asda plan to reduce their petrol and diesel prices by up to 2p a litre.