INFLATION in the UK has dropped to its lowest figure for over a decade and economists believe it will decline further still.
Inflation fell to one per cent in November as measured by annual growth in the consumer price index, according to figures released yesterday by the Office for National Statistics (ONS). It marks a drop from 1.3 per cent inflation in October.
The annual rate of inflation was last one per cent in September 2002.
Inflation was weighed down by transport prices dropping by 1.2 per cent between October and November. From September to October transport costs only fell by 0.5 per cent. Transport prices were helped further by a 3p decline in petrol prices.
Oil prices have nearly halved since June with the price of brent crude – extracted from the North Sea – falling from $115 (£73) a barrel to yesterday’s price of $60 a barrel.
“The downward pressure comes not just from falling prices at filling stations but also lower air fares and cheaper second hand cars. Likewise food and drink, where there is intense competition among the supermarkets,” said Richard Campbell, a statistician at the ONS.
Bank of England governor Mark Carney has said inflation is likely to fall below one per cent in the first six months of 2015. Should inflation drop below one per cent, Carney will have to write an open letter to the chancellor explaining why the two per cent target was missed by such a wide margin.
Some economists believe inflation could fall below one per cent much sooner than Carney has forecast.
RBS yesterday forecast inflation would be just 0.6 per cent in December. The same prediction was made by George Buckley, an economist at Deutsche Bank.
“Purchasing power should continue to improve over the coming months. This is key for sustainable decent consumer spending growth,” said economist Howard Archer of market analysts IHS.