UK inflation falls to two year low

22 May 2012

Inflation fell to its lowest level since February 2010 in April, the latest figures from the Office for National Statistics (ONS) show.

The drop in the Consumer Prices Index (CPI) to three per cent, down from 3.5 per cent in March, came as a result of a fall in air and sea transport, clothing and alcohol, as well as the timing of the Easter holiday.

These drivers were partially offset by an increase in prices from restaurants, hotels and the cost of renting.

The fall in CPI was mirrored by the Retail Prices Index (RPI) - a broader measure often used for setting pay - which fell to 3.5 per cent from 3.6 per cent in March.

Despite falling from its 5.2 per cent peak in September last year, inflation remains well above the Bank of England's two per cent target where it said it will remain 'until the middle of next year.'

It is the first time within this Parliament that the Bank of England will not have to explain to the Chancellor George Osborne why the two per cent target has not been met. The Bank is required to write an open letter to the Government if the CPI rate remains above three per cent or below one per cent for three consecutive months.

Preliminary ONS figures released last month indicated that the UK economy shrank for two consecutive quarters - a technical recession - as a result of higher than expected energy prices and ongoing tough credit conditions from the Euro. The Bank of England said the economy would continue to 'face strong headwinds' from these factors.