UK inflation falls to four-year low

18 February 2014

The UK's inflation rate has fallen to below the 2% target set by the Bank of England for the first time in more than four years.

In a boost to consumers, savers and anyone else concerned about the cost of living, figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) fell to 1.9% in January - the seventh consecutive monthly fall.

The ONS said the fall was a result of price drops in recreational goods such as the DVDs and tickets to cultural events, household goods and alcohol and tobacco.

Another measure of inflation, the Retail Prices Index – which includes mortgage payments – rose 0.1% to 2.8%.

Vanessa Owen, LV= head of annuities and equity release, said the news was particularly welcome for retirees.

"The fall in the rate of inflation is great news for those worried about the rising cost of living. This is especially good news for those in retirement who are often hit hardest by rising inflation," she said.

"This section of society spend a significantly higher proportion of their disposable income on bills, such as heating, and less on luxury items."

Recent LV= research found that almost half of over 65s are concerned about the impact inflation will have on their retirement income. And with people spending longer in retirement, it's more important than ever they carefully structure their income.

While the majority of annuities sold today are still purchased on a level basis – meaning the rate of income stays flat - there are retirement solutions available that provide an element of inflation-proofing.

They could consider an investment-linked annuity, which offer retirees the potential for future growth, added Owen. Or if they qualify for an enhanced annuity, the higher income will help to offset the impact of inflation as their life expectancy reduces the time for inflation to take effect.

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