20 Mar 2012

UK inflation falls to 3.4 per cent

Lower electricity and gas bills help drive down the overall rate of inflation to a 15-month low with the consumer prices index (CPI) rate dipping to 3.4 per cent.

Lower electricity and gas bills help drag the overall rate of inflation to a 15-month low with the consumer prices index (CPI) rate of inflation dipping to 3.4 per cent (Getty)

The drop comes as some economists warn that the overall rate of inflation may not pull back as quickly as previously thought amid resurgent oil prices, although the Office for National Statistics said there was no evidence of this in February.

Alternative measures of inflation also declined, with the retail prices index (RPI) dipping to 3.7 per cent in February, from 3.9 per cent in January.

The easing rate of inflation will be welcomed by households that were squeezed by high prices and sluggish wage growth throughout 2011 and will add further weight to the Bank’s decision to pump an extra £50bn into its quantitative easing programme last month.

Bank governor Sir Mervyn King and his colleagues have forecast the rate of inflation to dip below the government’s 2 per cent target at some point early next year.

The greatest downward pressure on the CPI rate came from domestic electricity and gas bills, which fell 1.3 per cent and 0.9 per cent respectively.

Read more: Poverty to rise and income to fall, says IFS

Scottish Power reduced gas tariffs by an average 5 per cent for around 1.4 million domestic gas customers last month, after E.ON announced a 6 per cent fall in electricity bills, benefiting 3.7 million customers.

But there was also a drop in the cost of recreation and culture, driven by cheaper digital cameras, pet-related products and books, newspapers and stationery.

Air fares fell by 1.6 per cent, compared to a 2.1 per cent rise a year ago, driven by cheaper European tickets, the ONS said.

The average price of petrol rose in February by 1.9p a litre to 135.1p, while diesel rose 1.4p to hit a record high of 143p a litre.

But the ONS said this had a negligible effect on the overall rate of inflation.

The cost of Brent crude in London has risen by nearly 25 per cent since the start of the year to around 125 US dollars a barrel as tensions in Iran and Syria escalate.

The resurgent price reportedly prompted President Barack Obama and Prime Minister David Cameron to discuss releasing strategic oil reserves to curb further rises.

Elsewhere, alcohol prices rose 2.6 per cent, a record rise for a January-to-February period, but the ONS said this is a particularly volatile category and offered no specific reason for the rise.