Inflation forecast to fall again

GEORGE Osborne is likely to receive some welcome economic news on the eve of his Budget with a further marked fall in the rate of inflation.

Analysts are expecting the benchmark consumer price index (CPI) to have fallen closer to 3 per cent last month as lower utility bills and high street discounting fed through.

The lower figure – set to be revealed by the Office for National Statistics on Tuesday – compares with 3.6 per cent in January and a three-year high of 5.2 per cent hit last September. The dip is in line with forecasts from the Bank of England, which predicted that the rise in the cost of living would ease throughout 2012. It expects inflation to get back to its target level of 2 per cent by the end of the year.

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Some economists have suggested CPI could slide to nearly 1 per cent as early as the final three months of 2012.

Brokers at Investec Securities are tipping the February inflation figure to come in at 3.2 per cent.

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However, economist Victoria Cadman warned that the inflation outturn is “unlikely to be without some upward pressures too” with food and fuel prices appearing to have recorded firmer month-on-month rises.

Howard Archer, chief UK economist at IHS Global Insight, the forecasting group, has pencilled in a February CPI reading of 3.3 per cent.

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“While inflation should fall back further over the coming months, the very real danger is that it will prove stickier than had been hoped for due to current high oil prices,” he added.

The easing rate will be welcomed by households who were squeezed by high inflation and sluggish wage growth throughout 2011.