UK: CPI inflation falls to 31-month low of 2.4%

THE rate of inflation in the UK fell to a 31-month low last month, official figures showed today, as record rainfall forced clothing retailers to bring forward their summer sales.

The Consumer Price Index (CPI) measure of inflation, on which the Government’s inflation target is based, fell to 2.4% in June, from 2.8% in May, the Office for National Statistics (ONS) said.

It was a substantially bigger fall than expected, with City analysts having forecast that the rate would ease to 2.7% last month.

The fall was driven by a record May-to-June decline in clothing and footwear prices, which the ONS said was more typical of the June-to-July period, reflecting earlier than usual seasonal discounting.

CPI inflation has fallen from 5.2% last September due to the waning impact of the VAT increase at the start of 2011, falling energy, food and commodity prices, and a number of price cuts from utility providers. The figure is now within 0.5 of a percentage point of the Government’s 2% target.

Chloe Smith, Economic Secretary to the Treasury, said: “Inflation has more than halved since September, meaning a little less pressure on family budgets. This lower inflation should support high street spending and growth in the economy in the months to come.”

Last month’s drop will add weight to the Bank of England’s decision earlier this month to pump more emergency cash into the economy through its quantitative easing programme.

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The steeper-than-expected fall is also likely to raise the likelihood of further emergency support later this year as the UK struggles with weak growth.

Britain’s economy entered a technical recession in the first quarter of the year as gross domestic product declined 0.2%, following a 0.3% drop in the final quarter of 2011.

The inflation rate last month was also driven down by transport prices, which fell 0.5% as petrol and diesel prices continued to fall.

Consumers also benefited from lower fuel prices, as the price of petrol at the pump fell by 4.3p to 132.8p in June and diesel dipped by 0.7p to 135.6p.

Food also helped pull down the overall rate as prices edged 0.1% lower. The ONS said the biggest fall within food came from meat prices, which fell 0.5%, with reports that the recent washout weather had hit demand for barbecue foods.

The largest upward effect on prices came from recreation and culture, in which the price of digital cameras fell at a slower rate than last year.

Alternative measures of inflation also fell, with the Retail Prices Index falling to 2.8% in June, from 3.1% in May.