Fall Below 1% 'Looks Likely'

The rate of inflation in the UK has fallen to a 12-year low of 1% due to decreasing fuel prices, the latest batch of official statistics has shown.

The Consumer Prices Index inflation measure fell to 1% in November, while inflation as measured by the Retail Prices Index fell to 2%, a five-year low.

If the rate of inflation falls any lower, the Bank of England will need to write a letter of explanation to Chancellor of the Exchequer George Osborne.

According to the Office for National Statistics, falling fuel prices have reduced the cost of both road and air travel, while competition between supermarkets helped reduce food prices.

Ben Bretell, an economist at Hargreaves Lansdown, said a fall below 1% "now looks likely".

"A reduction in fuel costs is good news for the UK economy, and can be seen as broadly analogous to a tax cut. It should ease the pressure on household budgets and boost consumer spending," he said.

Expert Opinion

The continuing fall in inflation is likely to impact on businesses of all sizes, particularly as yet another fall may increase the spending power that consumers hold. <br/> <br/>"Borrowing and investment could also be affected if these issues have a continued impact on interest rates, which may be something else for SMEs to bear in mind." Steven Beahan - Partner