Business

UK October inflation falls to 5%

  • 15 November 2011
  • From the section Business
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The rate of Consumer Prices Index (CPI) inflation in the UK fell slightly to 5% during October, down from a rate of 5.2% the month before.

Falls in the price of food, air transport and fuel helped to push the inflation rate lower.

Despite the drop, the rate still remains well above the Bank of England's target of 2%.

Retail Prices Index (RPI) inflation - which includes mortgage interest payments - also fell to 5.4% from 5.6%.

Despite the fall, the government said it recognised that inflation remained high.

"These are difficult times for households as prices continue to be affected by conditions in the global oil and gas markets," said a Treasury spokesperson.

MPs are set to debate a motion later, which urges the government to limit increases in the price of petrol.

The government plans to increase fuel duty by 3p a litre in January.

Energy costs

Food prices were driven down by heavy supermarket discounting and good harvests, according to the Office for National Statistics.

Air fares, which are historically very changeable, fell by 6% compared to the previous month.

Petrol also fell by 0.5p a litre, reflecting falls in the price of crude oil due to the weakening global economy.

Upward pressure on prices came from increases in the cost of clothing, electricity and gas.

Price rises from all the major energy suppliers have increased domestic fuel bills and are also expected to push up November's inflation figures.

Losses

The prolonged period of high inflation has made it difficult for savers to keep up with rising prices.

According to the Moneyfacts financial information service, there is no standard savings account currently available which would allow people to ensure their savings keep up with inflation, after tax is taken into account.

"Over the last year, the number of savings accounts that beat inflation for basic-rate taxpayers has dropped successively from 91 to absolutely none, which leaves savers in an impossible position," said Sylvia Waycot from Moneyfacts.

Letter

The data means that the Governor of the Bank of England, Mervyn King, has had to write to the Chancellor of the Exchequer, George Osborne, to explain why inflation is above the 2% target.

"The current high level of inflation reflects the increase in the standard rate of VAT earlier this year, and previous steep increases in import and energy prices," wrote Mr King.

He said without these "temporary" factors, inflation would be below the 2% target.

The Bank of England has said it expects the rate of inflation to drop in 2012 as prices fall back and the impact of the government's increase in VAT is no longer felt.

The British Chambers of Commerce (BCC) said supermarkets lowering their prices suggested the worsening economy was also pushing prices down.

"This confirms that weak consumer demand is forcing some businesses to reduce their margins," said chief economist David Kern.

"Falling petrol prices also contributed to the decrease, and we expect weak global growth to reinforce downward pressures on energy and commodity prices over the next year," he added.

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