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UK inflation rate drops to 14 month low

Consumer Price Index (CPI) inflation in the UK has fallen from 4.2 per cent in December to a 14 month low of 3.6 per cent in January, figures from the Office for National Statistics (ONS) indicate.

The fall in inflation was expected as last year's increase in VAT from 17.5 per cent to 20 per cent - part of the Government's plan to reduce the UK's deficit - dropped out of the 12 month comparison.

Retail Price Index (RPI) inflation also fell from 4.8 per cent to 3.9 per cent - its lowest level since November 2010.

A statement from the ONS said that in addition to the levelling of last year's VAT increase, other large downward pressures to inflation came from 'products bought in restaurants and cafes, tobacco, vehicle purchase and repairs, and alcoholic beverages.'

Both the Treasury and the Bank of England's Monetary Policy Committee (MPC) predict that inflation will fall further throughout the year due to declining petrol and domestic energy prices and back to the target rate of 2 per cent by the end of 2012.

A statement from the UK Treasury says: "Inflation fell significantly in January for the second month in a row, which is good news for family budgets. The Bank of England and other forecasters expect inflation to keep falling through this year, providing additional relief."

The Treasury did, however, remain cautious about the fall of inflation, warning that heightened tensions in oil-exporting countries could potentially affect external prices.

The Trade Union Congress (TUC) similarly called today's inflation figures 'good news' for consumers but said it was offset by poor pay rises.

"With prices still increasing twice as fast as wages, workers are still getting poorer month-by-month while high unemployment and wage stagnation persists," said the TUC's general secretary Brendan Barber.

"Inflation looks like being somewhat less of a problem in 2012, but our persistent lack of economic growth, mass unemployment and the on going damage caused by the government's austerity programme remain huge dangers."