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Inflation falls as food and fuel prices are reduced

Today we saw the first fall in inflation for sometime with a 0.7 percentage point drop to 4.5% for October. This is the largest monthly fall for 16 years and managed to beat the forecasts of economic expert forecasts who had been looking a fall of 0.5 percentage points. The main reason for the fall was a reduction in the cost of food and fuel prices.

This is a major turning point for the UK economy as a falling level of inflation allows the Bank of England to instigate a number of drastic interest rate cuts to try and refloat economy. This may have come at the perfect time for Gordon Brown as he looks towards his pre-budget announcement next week in which he is expected to announce tax cuts of between £15 billion and £30 billion. It will be interesting to see the tone of the statement going forward as there have been rumours in the press that Gordon Brown has been pressing the Treasury to review their forecasts and the downbeat tone of the proposed statement for next week.

Gordon Brown needs to find a balance between "adjusting" the figures and leaving himself open to cries of manipulation. Next week promises to be something of a milestone in the recovery of Gordon Brown.

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