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Lower gas and electricity bills helped UK inflation drop, official figures show

INFLATION in the UK dipped to a 15-month low last month, largely due to lower gas and electricity bills.

The consumer prices index (CPI) rate of inflation fell to 3.4 per cent compared to 3.6 per cent in January, the Office for National Statistics (ONS) said, as E.ON and Scottish Power cut their tariffs.

Other factors pulling the inflation rate lower was cheaper air fares and discounts on digital cameras - but a record January to February rise in alcohol prices, driven by spirits, held back further declines.

The drop comes as some economists warn that the overall rate of inflation may not pull back as quickly as previously thought amid resurgent oil prices, although the ONS said there was no evidence of this in February.

The easing rate of inflation will be welcomed by households that were squeezed by high prices and sluggish wage growth throughout 2011 and will add further weight to the Bank's decision to pump an extra 50 billion into its quantitative easing programme last month.

Bank governor Sir Mervyn King and his colleagues have forecast the rate of inflation to dip below the Government's 2 per cent target at some point early next year.

The greatest downward pressure on the CPI rate came from domestic electricity and gas bills, which fell 1.3 per cent and 0.9 per cent respectively.

Scottish Power reduced gas tariffs by an average 5 per cent for around 1.4 million domestic gas customers last month, after E.ON announced a 6 per cent fall in electricity bills, benefiting 3.7 million customers.

But there was also a drop in the cost of recreation and culture, driven by cheaper digital cameras, pet-related products and books, newspapers and stationery.

Air fares fell by 1.6 per cent, compared to a 2.1 per cent rise a year ago, driven by cheaper European tickets, the ONS said.

The average price of petrol rose in February by 1.9p a litre to 135.1p, while diesel rose 1.4p to hit a record high of 143p a litre.

But the ONS said this had a negligible effect on the overall rate of inflation.

The cost of Brent crude in London has risen by nearly 25 per cent since the start of the year to around 125 US dollars a barrel as tensions in Iran and Syria escalate.

The resurgent price reportedly prompted President Barack Obama and Prime Minister David Cameron to discuss releasing strategic oil reserves to curb further rises.

Chris Williamson, chief economist at financial services information firm Markit, said oil prices would present the "biggest headache" in the months ahead, and the Bank's forecasts may prove "optimistic".

He said: "Stickier than anticipated inflation will be bad news for consumer spending and the economic recovery in general." Elsewhere, alcohol prices rose 2.6 per cent, a record rise for a January-to-February period, but the ONS said this is a particularly volatile category and offered no specific reason for the rise.

Alternative measures of inflation also declined, with the retail prices index (RPI) dipping to 3.7 per cent in February, from 3.9 per cent in January.

Vicky Redwood, chief UK economist at Capital Economics, said food prices, which were steady in February, could rise in months ahead in response to the recently-declared droughts.

She said: "The downward trend in the headline rate is likely to pause over the next couple of months. Indeed, inflation could even rise in March on the back of the continued rise in petrol prices.""Report by Daily Record website.

Published: 20.3.2012