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Inflation falls below 2% target for first time since 2009

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The UK's headline inflation rate fell to 1.9% in January, the first time the rate has fallen below the Bank of England's 2% target in four years.

Economists had predicted January’s Consumer Prices Index (CPI) figure would equal the 2% reported in December 2013.

The fall in the rate resulted from price movements for recreational goods & services, furniture & household goods and alcoholic beverages & tobacco, according to the Office for National Statistics (ONS).

The figure will likely bolster the Bank of England’s message that interest rates should remain at record low levels.

Last week, Bank Governor Mark Carney tied a rate rise to a recovery in UK businesses.

Carney said the country had enjoyed a “consumer-led recovery” but that businesses must begin investing at a much greater rate for him to be convinced the time is right to raise rates.

He had previously linked interest rate rises to the unemployment rate. But aftter the rate dropped faster than expected, Carney effectively abandoned his forward guidance.

Steve Wilkie, managing director of retirement specialists Responsible Life, said: “Now CPI has dipped below the Bank of England’s 2% target for the first time in four years, the Governor will be in no hurry to raise interest rates to more normal levels. His latest forward guidance hints that a rate rise is still some way off.

“So for those who rely on savings for income, today’s fall in inflation is a meaningless victory. With interest rates still at rock bottom, their cash savings are going nowhere in real terms.”





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