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Inflation falls to 1.5%


Inflation fell to 1.5% in May 2014 in comparison with 1.8% the previous month; making it the sixth consecutive month where the Consumer Price Index (CPI) was recorded below the Bank of England’s target rate of 2%.

The Office for National Statistics (ONS) said that the key drivers of the reduced rate of inflation included falling flight costs as well as a steep reduction in the costs of food and non-alcoholic beverages.

They said that the price of food and non-alcoholic beverages such as bread, cereal and vegetables fell by 0.6% over the last year – the fastest drop in a decade.

The chancellor, George Osborne, described the fall in inflation as “good news”, adding that it is “another sign that our long term economic plan is working”.

Wages still not growing

However, despite the falling inflation, average wages are failing to keep pace with the cost of living, as these only rose by 0.7% in the three months to April 2014.

Labour’s shadow treasury minister, Catherine McKinnell, welcomed the news but added “most people are still feeling the squeeze”.

She said: “Wages after inflation have now fallen by over £1,600 a year under David Cameron and the link between the wealth of the nation and family finances is broken”.

Others also voiced their feelings that this news meant that the Bank of England should not rush into increasing interest rates; especially because of the concerns that this would increase the cost mortgage repayments.

Jeremy Cook, chief economist at the currency company, World First, echoed these views, as he said: “There is pressure on Mark Carney and the rest of the MPC (monetary policy committee) to hike rates on the back of growth and housing market concerns, but given their central mandate of price stability, there is little cause to alter the current policy as it stands”.

Additionally, Howard Archer, chief UK and European Economist at HIS Global Insight, spoke of his belief that the Bank of England will keep interest rates below 2%. This is because he sees the reduced rate of inflation as good news for consumer purchasing power, and therefore gives the Bank of England “flexibility” over interest rates.

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