UK inflation dips

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UK inflation dips

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Inflation in Britain edged down in February to the lowest level in over a year.

It was at an annual rate of 3.4 percent from January’s 3.6 percent. That extended a decline from September’s three-year high of 5.2 percent.

The British central bank and the government see lower inflation as crucial for the UK’s fragile economic recovery to gather pace.

The theory is that easing inflation will allow hard-pressed consumers to increase spending this year and boost the UK economy.

Britain’s consumers have cut back spending sharply in recent years as price rises outpaced meagre wage growth and the government’s tax increases and spending cuts are also hurting household budgets.

The Bank of England forecasts that consumption should pick up later this year as it predicts inflation to fall below its two percent target by the end of 2012.

But the drop in the headline inflation rate in February was slightly smaller than economists had forecast, highlighting the risk that price pressures will not fade as quickly as hoped.

The Office for National Statistics said a drop in prices for housing, electricity, recreation and culture pushed overall inflation down, while a record rise in prices of alcoholic beverages contributed most to the increase in costs of living.

In a sign that underlying price pressures are fading as well, core inflation – which strips out volatile components such as food and energy – fell to 2.4 percent, the lowest since November 2009.