UK Inflation Falls To 2% Target

The Bank of England Has Hailed The News

15.01.2014

Steven Beahan, Partner | +44 (0)114 294 7868

The UK's inflation rate has fallen to two per cent for the first time since the same figure was named as the Bank of England's target in 2009.

Office for National Statistics figures show it fell from 2.1 per cent in November to two per cent in December.

Experts believe the consumer price index, which measures the cost of a number of basic goods that are essential in day-to-day life - including food, train travel and petrol - offers a valuable insight into the value for money Britons get from their pay-checks.

The government has worked hard with the Bank of England to reduce the costs faced by workers after a decade high rate of inflation was recorded in September 2011 (5.6 per cent).

Analysts from the Office for National Statistics, which produced a report alongside the figures, found that the largest contributions to the fall came from food and drink prices, as well as drops in the cost of recreational goods and services.

David Cameron, prime minister of the UK, welcomed the findings and said the economy was growing and creating jobs for people across the country.

Mr Cameron and his Conservative party are seeking re-election in the coming 2015 polls and Tory activists believe they could increase their share of seats to an overall majority if inflation is kept at the two per cent rate over the coming months, as workers will see their money go further.

Labour welcomed the "small" fall in inflation, but warned that prices are still rising as fast as wage packets and that there is a "cost-of-living crisis" across the country.

Catherine McKinnell shadow economic secretary to the Treasury, said: "What we need is Labour's plan to tackle the cost-of-living crisis and earn our way to higher living standards for the many and not just a few.

"Labour would freeze energy bills until 2017 while we reform the energy market, make work pay by expanding free childcare for working parents and get at least 200,000 homes built a year by 2020."

The government disputes this is possible without increasing the UK's debt burden, which coalition ministers are seeking to reduce in the coming years.

Expert Opinion
While it is only a marginal fall and mainly symbolic as it is line with the government’s target, it will on the whole be welcomed by both consumers and businesses of all sizes. Hopefully trends will continue in this manner and support the ongoing improvements being seen in the economy. It will also be interesting to see whether the rate remains at this level as economic growth takes hold, particularly in relation to wage demands.

"Falling inflation is a step in the right direction, but small businesses will be hoping for more improvements too – namely in terms of access to finance which will allow them to continue to invest in the development of innovative new products and services, as well as the expansion of operations.

"We would urge businesses looking to take the next step to ensure they get advice on all aspects of their expansion, including the legal implications."
Steven Beahan, Partner