UK inflation rate drops by 0.4% but confidence remains low

Posted on 17 Jul 2012 by Tim Brown

Inflation has dropped for the third month in a row with the rate now rising at the slowest rate since the end of 2009 but experts say the economy is still fragile.

The annual inflation rate as measured by the Consumer Prices Index fell to 2.4% in June, from 2.8% in May, according to the Office for National Statistics.

The rate of inflation is slowing due to lower food, fuel and clothing prices while housing costs fell to 2.8% from 3.1%. The biggest contributor to the fall from May was clothing and footwear, which was 4.2% lower while alcohol and transport costs were down by 0.5%.

Petrol prices fell by 4.3 pence per litre on the month, to £1.33 a litre on average. Diesel was down 4.7p to an average of £1.39.

Food prices were 0.1% lower. The biggest falls seen were in meat prices, the ONS said, with reports of weather affecting demand. This could be down to the wet weather leading people to cancel summer barbecues.

Jason Conibear, market analyst at forex specialists, Cambridge Mercantile said that although inflation continues to come down the UK economy is still in a precarious position.

“Low inflation is by no means a panacea,” he said. “There are numerous fundamental threats to the UK economy, not least a Europe that’s all but bust, zero confidence among consumers and business, and rapidly deteriorating public finances. Just because the cost of living is falling does not mean people will start living.

“The UK consumer – like the UK economy – is still top-heavy with debt and until a significant deleveraging has occurred, people are going to remain cautious.”