Inflation in UK falls to lowest since 1948

UK retail prices index (RPI) plumbed further into negative territory, registering a drop of 1.2 per cent in the year to April. The RPI is used to calculate pensions, pay rises, student loans, several savings rates and its fall has left many people worried about the impact on their finances.

The Office for National Statistics said that inflation as measured by the Retail Prices Index stood at -1.2 per cent in April, down from -0.4 per cent in March and the lowest level since 1948.

Many companies have already geared up for the deflation with pay freezes or salary cuts in response to the UK's slide into deepest recession ever since last Autumn. But the TUC has warned of further cuts in wages having an overall negative impact making it more difficult for the economy to recover.

Brendan Barber, Trade Union Congress, (TUC) general security said entrenched deflation would jeopardise economic recovery.

He added that the calls for pay freezes are wrong in the circumstance and that employees and their unions understand the reality of companies hit hard by recession.

He added that companies that can still afford reasonable increases feed through into helping the recovery process.

Economists say that with 8 in 10 employers using RPI inflation as a cost of living benchmark, and unemployment rising faster than at nay time for a generation the ongoing pay squeeze in set to continue, particularly in the private sector. It was now almost certain that the growth in average earning would moderate to an annual rate of 2 per cent of less by the end of the year.

Another measure of the cost of living – the Consumer Price Index is used by the government to assess progress in reaching the 2 per cent inflation target, but it does not include housing costs.

The ONS said CPI inflation also fell in April – from 2.9 per cent to 2.3 per cent. This had risen to more than 5 per cent last summer when oil prices rose to a record $147 a barrel.

According to analysts the 30 per cent fall in value of sterling between the summer of 2007 and the end of 2008 was pushing the price of some imported goods, with the inflation rate picking up for household goods despite the weakness in the housing market.

The pound rose 1 per cent against the dollar, trading at $1.5482, while it rose 0.3 per cent against the euro to 1.1135 euros.