UK inflation halves to 0.8% due to falling energy and fuel prices
INFLATION has today almost halved to 0.8 per cent from 1.5 per cent as petrol and energy prices have fallen.
The Office for National Statistics (ONS) confirmed the rate of Consumer Price Index (CPI) inflation decreased sharply in April and is now at its lowest rate since August 2016.
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Most economists had predicted inflation would fall to 0.9 per cent.
CPI is now far wide of the Bank of England's 2 per cent target, while it is set to drop lower still, with some economists bracing for a near-zero headline rate of inflation by the summer.
Falling energy and fuel pump prices were the largest contributors to pushing prices down, as were falling clothing and footwear prices.
The ONS said average petrol prices dropped by 10.4p a litre between March and April - the biggest fall since unleaded petrol records began in 1990 - amid the global oil price rout.
Energy prices also pushed inflation lower as regulator Ofgem reduced its default tariff cap.
But the ONS points out that this was somewhat offset by the rising price of recreational goods.
The price of games, toys and hobbies, such as computer games consoles, craft kits, and dolls, also all increased.
Prices for whisky were also up and prices for packs of bottled and canned lager, and cigarettes increased this year.
What is inflation?
INFLATION is defined as a general increase in prices and fall in the purchasing value of money.
Inflation has a massive impact on people's wages and buying power which can really affect families' bank balances.
For example, if inflation is 10 per cent, a handbag costing £50 will be priced at £55 in a years time.
Inflation, which is measured by the Office for National Statistics, is also what the Bank of England uses as a guide when it is setting interest rates.
This means inflation can also have an impact on mortgage costs and savings rates.
Check out our inflation guide for more information.
Falling inflation is good for households in that it means the price we pay for goods has dropped.
It also means there's more chance our savings aren't being eroded by inflation as the top savings rate is currently above inflation at 1.16 per cent.
Laura Suter, personal finance analyst at investment platform AJ Bell said: “The inflation news does provide a boost for savers, who for the first time in ages can now get above inflation interest rates on easy-access savings accounts – from more than one account.
"But the past few weeks have seen a sea of cuts from providers, following the Bank of England’s base rate cut and competitors cutting their rates.
"This means that these inflation-busting savings rates are likely to vanish quickly – with the exception of NS&I, which recently reversed its planned cuts to rates."
But the Bank of England warns that when inflation falls, people may be put off spending as they expect prices to drop further, and if everybody does this companies could fail and people could subsequently lose their jobs.
The CPIH measure of inflation, which includes housing costs, fell to 0.9 per cent in April down from 1.5 per cent in March 2020.
While the retail prices index (RPI) measure of inflation fell from 2.6 per cent in the year to March to 1.5 per cent in April.
Jonathan Athow, deputy national statistician for economic statistics at the ONS, added: "While the coronavirus limited the availability of some goods and services, its effect on prices was more muted.
"Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.
"Games, toys and hobbies saw rising prices, perhaps as people occupied their time at home.
"Food prices grew no more quickly than other goods and services, though fresh vegetables did see stronger rises."
It comes as just yesterday ONS figures revealed the number of people claiming benefits in April has soared by 70 per cent to almost 2.1million due to the coronavirus crisis.
More on money
Meanwhile, unemployment figures jumped by 50,000 to 1.35million in the three months to March, the ONS said.
Chancellor Rishi Sunak has warned of a "never-seen-before coronavirus recession" leaving permanent damage on the economy.
It follows around 6million people in the UK so far being furloughed, where they receive 80 per cent of their wages up to £2,500 a month if they're currently unable to work.