Inflation fell sharply last month as lower fuel prices and hefty pre-Christmas discounting on the high street brought some economic relief.
The drop – to 4.2% from 4.8% in November – is the biggest fall since April 2009 and supports Bank of England forecasts that inflation will tumble this year as a result of the faltering economic recovery. Inflation hit a three-year peak last September when it reached 5.2%.
While it has remained stubbornly above the Bank’s 2% target over the past couple of years, economists believe by the end of this year it will be below that benchmark – bringing relief to consumers and businesses.
Gerry Jones, the Institute of Directors South West chairman, said: “What goes up must come down. We are finally seeing the sharp falls in inflation which we expect to continue in 2012. VAT effects falling out of the year-on-year index, lower utility prices and weakening demand should exert strong downward pressure on inflation this year.
"Over recent years the inflation story has been all about overshooting. Looking ahead to 2013 it could be all about undershooting. Today’s inflation figures suggest that quantitative easing will be expanded in February.”
