Inflation falls to 2.8%

| June 19, 2012 | 0 Comments
Inflation falls to 2.8%

Inflation fell to 2.8 per cent on the Consumer Prices Index in May, from 3 per cent in April, surprising economists who had not expected it to change.

Inflation also fell on the Retail Prices Index, which includes housing costs, from 3.5 per cent in April to 3.1 per cent in June.

Inflation is now at its lowest level for two and a half years according to the latest figures, which were released by the Office for National Statistics (ONS), although it remains above the government target of 2 per cent.

The latest ONS figures follow a 4.5p fall in the average cost of a litre of petrol to 137.1p, between April and May.

Prices dropped at the pumps after the cost of oil fell in the face of pressures in the global economy.

Oil prices have continued to fall and now stand at around $95 a barrel for Brent crude.

A drop in the cost of food and non-alcoholic drinks also contributed to the fall in inflation.

The price of grapes, bananas, peaches, nectarines, and vegetables all fell during the month.

The upward pressures on inflation in May included higher sea and air fares.

Economists are now expecting the Bank of England to launch another round of quantitative easing to boost the UK economy, after its monetary policy committee meets on July 5.

The Bank was previously unwilling to continue with its programme of increasing the money supply in case it caused inflation to increase.

Analysts are now suggesting that the asset purchase programme could be boosted from £325 billion to £450 billion.

This would support the manufacturing sector and could help the economy climb out of recession.

It entered a technical recession in the first quarter of 2012, when gross domestic product declined by 0.2 per cent, following a 0.3 per cent fall in the final quarter of 2011.

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