The drop in the CPI rate is said to be the biggest monthly fall since April 2009 and the lowest since June 2011; whilst the Retail Price Index (RPI) inflation, which includes mortgage interest payments, also fell to 4.8% from its previous 5.2%.
According to the ONS the drop in both the CPI and RPI is due to lower fuel prices and cheaper clothing, with sharper falls expected in the coming months.
One economist has said of the drops: “The increase in VAT from 17.5% to 20% last January should fall out of the year-on-year comparisons, which on its own should shave 1% or more off the annual rate.
“At the same time, food, clothing and energy prices are now all falling, suggesting a broad-based lowering of price pressures, which should have a marked downward effect on the headline rate of inflation in coming months.”
The falling inflation is expected to ease the squeeze on consumers’ spending power, whilst at the same time giving the Bank of England leeway to extend its quantitative easing (QE) programme to stimulate the economy.
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According to a leading Think-Tank the UK has already double-dipped back into recession, as interest rates look set to stay on hold at their record low until 2016.
It’s believed that the predicted growth of around or under 1pc for years to come will force the Bank of England to keep base rates at 0.5pc.
The Think-Tank, the Centre for Economics and Business Research (CEBR) believes the UK economy shrank in the last three months of 2011 and is still contracting during the current quarter, marking another recession.
Chief Executive of CEBR, Douglas McWilliams, said: “The world is going through a fundamental change where previously poor economies are industrialising fast. This is good news for them, but because of the limits imposed by shortages of energy, minerals and food, some of their growth is at our expense.
“This is not to say that if we break off trading with them we will be better off. On the contrary, a strategy of disengagement with the rest of the world would make matters very much worse.”
The CEBR have already slashed its expectations from the already low 0.7pc it predicted in October 2011, to a 0.4pc fall, advising prospects for the economy in the UK hinge on the fate of the Eurozone.
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With only a few weeks to go until the tax return deadline, the Treasury have closed a tax avoidance scheme which could have cost £1.5billion in lost tax receipts.
Following a tip-off that artificial trading companies were being set up in tax heavens, the Treasury has opted to close a scheme which could have cost the economy in lost tax receipts.
It’s believed that wealthy individuals were planning to use to use a long standing “past-cessation trade relief” – designed for tradesmen and professionals to offset legitimate costs against their income – to artificially reduce their tax bills.
Exchequer Secretary, David Gauke, said the scheme would have put a “significant” amount of money at risk, adding: “It is unacceptable, at a time when we are trying to bring down the deficit, that there are those who try to avoid paying the tax they owe.”
The current scheme could have legitimately been used by a tradesperson or professional who had ceased trading, but later incurred costs from responding to customer requests where they remained liable.
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Ministers have called on Her Majesty’s Revenue and Customs (HMRC) to clarify how the introduction of real time information (RTI) for universal credits will affect SMEs.
In a report released today, the Parliament’s public accounts committee says HMRC must clarify how RTI, which is being developed by HMRC to support the introduction of the new universal credit, will affect small businesses and the self-employed who may not use electronic payroll systems.
Chair of the Public Accounts Committee, Margaret Hodge, said: “The sheer complexity of the benefits system places a heavy burden on claimants.
"People claiming multiple benefits, such as housing benefit and child tax credit, deal with different public bodies.
“This can be confusing and potentially discourage legitimate applications. Departments responsible for means testing must work together to get a better understanding of the burdens placed on claimants."
The report also states that HMRC need to develop an effective approach for those claimants and businesses that are likely to be outside RTI in order to try to prevent previous problems which have affected tax credits.
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Yesterday the Treasury sold gifts which will pay returns below the level of inflation for only the second time ever, when the Debt Management Office sold £700 million of inflation-linked bonds which will mature in 2047.
The 35-year gifts were adjusted to exclude inflation and therefore sold with a rate of 0.116pc; meaning investors were accepting a small real-terms loss in exchange for lending their cash to the UK.
Bond yields are partly a sign of the markets’ confidence in a governments ability to repay their debits in future; and the greater the demand for bonds, the lower the interest rate a borrowing government has to pay buyers.
Treasury sources have highlighted that amid fears for the weaker European economies, the UK gift sale is a sign of the markets’ confidence in the Coalition government.
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