Inflation Falls To Lowest In Over Two Years

UK inflation fell to its lowest level in more than two years last month, providing some welcome relief to household budgets, official figures have shown.

The Consumer Price Index (CPI) rate of inflation fell to 3% in April, compared with 3.5% in March , its lowest level since February 2010, the Office for National Statistics ( ONS ) said.

Inflation has fallen from a 5.6% high last September due to the waning impact of the VAT hike at the start of 2011, falling energy, food and commodity prices and a number of bill cuts from utility providers.

The weak economic climate has forced many retailers to cut their prices in an attempt to draw in customers, with the latest figures showing clothing and footwear prices rose by just 0.2% over the month compared with 1.4% last year.

Softer excise duty rises on alcohol and tobacco, as well as lower air fares due to the timing of Easter, also helped keep a lid on the rising cost of living.

Michael Saunders, economist at Citigroup, told Sky News he expected inflation to continue to fall in the coming months.

The sharp decrease also means Bank of England Governor Sir Mervyn King has narrowly avoided having to send his tenth letter to Chancellor George Osborne to explain why inflation is higher than the Government's 2% target.

At 3% it is now within one percentage point of that goal, negating the need for an official note.

The Chancellor said the decrease was good news, adding: "This brings welcome relief to families on tight budgets."

But the fall in inflation in April is likely to bolster the case for the central bank to pump more emergency cash into the economy through its quantitative easing (QE) programme.

The UK economy entered a technical recession in the first quarter of the year as gross domestic product declined 0.2%, following a 0.3% drop in the final quarter of 2011.

The most significant upward contribution to living costs last month came from restaurant and hotel prices, which rose 1% compared with a 0.6% increase a year ago.

Housing and household services also had an upward effect as lower utility bills were overshadowed by higher rents.

The alternative measure of inflation, the Retail Price Index, also fell to 3.5% from 3.6% in April.

:: The inflation figures came as the International Monetary Fund said the UK should consider another round of QE or make a reduction in the base interest rate from its record low of 0.5% to help boost the ailing economy.

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