UK inflation drops

UK CPI fell to the Bank of England’s 2% target during December, for the first time in four years.

The Office for National Statistics (ONS) said falling inflation, which was 2.1% in November, was driven by slower price growth in food and non-alcoholic beverages, and recreational goods.

Britain’s monetary policy is based on an inflation targeting regime. The government has set the Bank of England’s policymakers a 2% target for inflation, which they aim to meet over the medium-term.

However because of the recent economic turmoil, which necessitated loose monetary policy such as the £375bn gilt-buying quantitative easing programme, the Bank of England has been given some slack on meeting this target.

Falling inflation eases the squeeze on wages, which have been growing slower than prices. This real terms decline is expected to continue along 2014, according to the Office for Budget Responsibility.