Lower fuel prices keep lid on cost of livingAir fares down but hotel bills are on the rise

15 May 2007

The cost of living in the UK has dropped sharply thanks to lower energy bills, official figures revealed today.

The Consumer Prices Index (CPI) - the official measure of annual inflation - rose by 2.8 per cent last month, easing back below the 3.1 per cent level recorded in March.

The fall in CPI came on the back of drops in electricity and gas prices, according to the Office for National Statistics (ONS).

Bank of England governor Mervyn King must write to the Chancellor if inflation hits more than 1 per cent above or below the Government's 2 per cent target and he has to write again if CPI fails to come back down after three months.

Hope for homeowners

The drop will give hope to homeowners that the Bank will not be pressured into rising interest rates again after the quarter-point increase to 5.5 per cent earlier this month.

The ONS said CPI had eased to levels not seen since the beginning of the year, thanks largely to the recent spate of energy bill cuts kicking in.

Power suppliers have been reducing prices since March after wholesale costs came down.

British Gas was the first to announce cuts, dropping gas charges by 17 per cent and electricity by 11 per cent in March, followed closely by a further 6 per cent fall in electricity and 3 per cent drop in gas tariffs.

The ONS figures also showed that the Retail Prices Index (RPI) - often seen as a more representative measure of inflation as it includes housing costs - also fell sharply in April.

It dropped to a rate of 4.5 per cent, down from 4.8 per cent in March which was its highest level for more than 15 years.

Air fare decreases

Both CPI and RPI saw downward effects from cuts in the cost of household goods and furniture, with air fare decreases also helping bring down CPI.

But inflation is still significantly above the 2 per cent target and last month saw upward pressure from higher clothing price tags, alongside increased restaurant and hotel bills.

Vegetables were also more expensive, pushing up inflation, according to the ONS data.

The ONS said seasonal food and clothing costs may continue to put pressure on CPI, as prices tend to rise in May.

But with many energy suppliers having only just introduced their tariff cuts at the end of April, the power bill decreases are set to help keep a lid on the cost of living.

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