UK inflation drops to 3.4%

Inflation continues to fall in the UK with the consumer prices index (CPI) dropping 20 basis points in February, according to the latest official numbers.

The Office for National Statistics says CPI annual inflation declined to 3.4% last month, easing from the 3.6% seen in January – which itself was down from 4.2% in December.

Price falls in the electricity and gas, recreation and culture, and transport sub-sectors were cited as the drivers of the move. Alcohol sales and vegetables prices were the largest sources of upward pressure.

Although CPI remains persistently above the 2% official target, the Bank of England expects inflation to continue to ease over coming months to eventually fall below the target rate in early 2013.

However, economists note that strong upward pressures remain in the economy, with higher-than-expected oil prices likely to prevent inflation from subsiding as quickly as hoped. (article continues below)

Howard Archer, chief UK and European economist at IHS Global Insight, says: “If consumer price inflation does prove to be sticky over the coming months, this will have worrying implications for UK growth prospects.

“Sticky consumer price inflation would maintain an appreciable squeeze on consumers’ purchasing power and dilute hopes that consumers will increasingly step up their spending as 2012 progresses.”

The retail prices index (RPI) – which is often used as the starting point for wage negotiations – dropped from 3.9% to 3.7% over the course of February.