UK inflation drops below 2% target

The Consumer Prices Index (CPI) slid from 2.2% to 1.8% in June, the Office for National Statistics (ONS) said – the lowest since September 2007.

Falling food prices in June – particularly for meat, milk and fruit – were the main factor behind the fall, compared with a year earlier when food costs were rising sharply.

CPI was also dragged down by a lower increase in furniture prices than seen last year.

Average petrol costs in June also rose 4.4p to 101.6p a litre, although this was lower than the 5.3p jump seen a year earlier when oil prices were heading towards a record 147 dollars a barrel.

Meanwhile, mortgage arrangement fees fell this year compared with rises a year ago and insurance costs also fell more quickly than 12 months earlier, despite an upward effect from dearer computer games.

Inflation-watchers on the Bank of England’s Monetary Policy Committee (MPC) will be relieved that CPI is now below target after an 18-month period in which rocketing energy bills, food costs and petrol prices pushed the benchmark to a record 5.2% last September.

But according to its own predictions, CPI is likely to fall below 1% later this year as the impact of recession weakens demand and prices.

This means Bank Governor Mervyn King is likely to have to write a first letter to the Chancellor to explain why CPI is undershooting the 2% target.

The figures also showed the wider Retail Prices Index, which includes housing costs such as mortgage interest payments and council tax, falling to minus 1.6%. This is the lowest level since ONS records began in 1948.

Source: Press Association

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