UK inflation falls to record low

05-19-2009 08:36

The UK inflation exceeded expectations in April and showed the lowest level since January 2008 on the back of easing price pressures after the economy faced the worst downfall since 1979. Today the Office for National Statistics announced that April resulted in a yearly inflation of 2.3% versus 2.9% in March. The yearly rate was slightly under the forecasted level of 2.4% and surpassed the lowest level in January 2008 of 2.2%.

Consumer prices rose monthly by 0.2%, which was less than the forecasted increase of 0.4%. Core inflation, which excludes volatile food, alcohol, tobacco and energy prices, declined from 1.7% to 1.5%; the lowest level since January 2009.

Housing and household services caused the biggest descending pressure on the yearly rate in the consumer price index. This was led by energy (electricity and gas) bills, which dropped this year. Non-alcoholic drinks and food also pressured the yearly change downwards. Nevertheless, transport costs had a major upward effect, which was caused by acquisition of air transport, lubricants, fuels and vehicles. Communication also provided upward pressure.

In April, the Retail Price Index (RPI) went up to 211.5 versus 211.3 in the previous month, which meant a 0.1% raise on a monthly basis. Retail prices dropped 1.2% annually against a 0.4% decline in March; the weakest level since the start of the official series in June 1948. Economist expected a 0.2% monthly increase and a 1.1% decline on a yearly basis.

Not including home loan interest costs, the index rose by 1.7% on a yearly basis; the weakest level since June 2002, while the previous month showed a 2.2% increase.

The most important aspects which distressed the Consumer Price Index (CPI) also upset the RPI. Furthermore, housing caused a major downward pressure, due to home loan interest costs in combination with March's decline in the bank rate from 1% to 0.5%. At the moment the bank rate is at its weakest level since the establishment of the central bank in 1694.