Inflation falls to 4.2%

Inflation falls to 4.2%

The rate of Consumer Prices Index (CPI) inflation fell to 4.2 per cent in December, from 4.8 per cent in November, according to the latest figures from the Office for National Statistics (ONS).

This is the third consecutive month that inflation has fallen and December’s figures represents the biggest monthly fall since April 2009.

Inflation is now at its lowest level since June last year and many economists are predicting a continued decline throughout the year.

In November, the Bank of England predicted that inflation would fall below the Government’s inflation target of 2 per cent by the end of this year.

Retailers’ attempts to generate sales by cutting prices in the run-up to Christmas have helped to push inflation down.

The price of clothing and footwear fell by 2.8 per cent between November and December and fuel prices fell by 1.1 pence a litre, although food prices increased by 1.4 per cent.

Although the fall in inflation will help to ease the strain on household incomes, analysts expect consumers to continue to control their spending in the face of continuing uncertainty over jobs and tightening credit conditions.

While there was good news on inflation today, a worrying economic forecast by the Ernst & Young Item Club suggests that the UK economy has fallen into a ‘technical’ recession due to the eurozone crisis and rising unemployment.

The Item Club has cut its GDP growth rate forecast from 1.5% to 0.2% for 2012 and expects unemployment to rise by a further 300,000 this year, to just below three million people

It does not expect the UK economy to recover until CPI inflation drops to 2 per cent late this year.

The Chartered Institute of Personnel and Development expects unemployment to remain above 2.5 million until at least 2016.

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