UK inflation falls - but it's too early to hang out the bunting

INFLATION in the UK fell in October thanks to decreases in the price of food, fuel and air transport. The Consumer Prices Index (CPI) fell to five per cent from 5.2 in September, while the Retail Prices Index (RPI) fell from 5.6 per cent to 5.4.

Both measures of inflation remain well above the Bank of England's two per cent target rate.  

A Treasury spokesperson told the BBC: "These are difficult times for households as prices continue to be affected by conditions in the global oil and gas markets."

James Igoe, private client director at XCAP stockbrokers, said that Mervyn King, the Governor of the Bank of England, will be relieved. "He will rightly feel more justified in keeping his anti-inflationary weapons firmly in their cabinet for a while longer.

"With economic growth still negligible and the public sector job cuts finally starting to bite, raising interest rates to contain inflation was always a pretty unappealing prospect for the Bank of England."

However, Igoe questions how long the fall in inflation will last, observing that much of the downward pressure on prices was due to "aggressive, and possibly unsustainable" discounting by the supermarkets.

William Hunter of Hunter Wealth Management agrees, warning it is "far too early to hang out the bunting".

He added: "People's savings and nest eggs are still getting hammered... If there's one trend in the current environment, it's the volatility of monthly figures. One month's rise can be followed by a fall - and vice versa." ·