UK inflation falls to 4.1%
Inflation in the UK fell again in November to 4.1%, according to official figures. The decline follows that in October from its 16-year high of 5.2% to 4.5%.
Consumer Prices Index (CPI) inflation is now at its lowest since June but is still less of a decline than expected by many analysts, with some predicting a fall to 3.9%.
Inflation is continuing to fall as a result of lower oil and energy costs.
However, the fall still means that Mervyn King, the Governor of the Bank of England, will have to write a letter to Chancellor Alistair Darling to explain the level of inflation.
Every third month when inflation exceeds its target by more than a full percentage point, the Governor has to outline what steps the Bank is taking to return it to its target of 2%. In his letter, Mr King said very low inflation was a possibility.
Many analysts believe that inflation will continue to fall into the New Year with some concerned that it will drop below the 2% target and deflation is a possibility.
A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.
Policymakers believe inflation is no longer a threat as the recession deepens, and have warned of the danger of deflation next year.
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