Fall in petrol prices sees inflation drop by 0.5%
Inflation has fallen sharply by 0.5% to 2.2% in October, according to the Office for National Statistics.
The Consumer Price Index (CPI) was 2.7% in September and now, just a month later, it is only marginally ahead of the Bank of England's target of 2%.
The slowdown has largely been attributed to recent falls in the prices of petrol and diesel, as well as a smaller rise in tuition fees compared with last year.
Core inflation, which removes more volatile components of the index such as food, energy and alcohol, has fallen to its lowest level since September 2009 at 1.7%, down from 2.2% in the previous month.
Azad Zangana, European economist at Schroders, says: "We have been anticipating falls in the inflation rate for a while, although the larger than expected fall this month took us and the market by surprise."
Martin Beck, UK economist at Capital Economics, warns that inflation may "tick up a touch" in November off the back of recent increases in energy prices, but expects that "upward pressure could be short-lived". He adds that the lower rate should "help allay fears that the BoE will be considering raising interest rates in the near future".
Giles Andrews, chief executive of peer to peer lending service Zopa, says the lower rate means British savers will be harder pushed than ever to get a decent return on their savings.
Meanwhile, the pound fell slightly against the dollar and euro following the news after recent highs, to exchange rates of 1.58 and 1.19 respectively.
This article was written for our sister website Money Observer
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).