Midland business leaders have welcomed the biggest fall in inflation for 14 months.
The consumer prices index (CPI) rate of inflation fell to 3.6 per cent in January, from 4.2 per cent in December, as the previous year's VAT hike from 17.5 per cent to 20 per cent fell out of the year-on-year comparison.
There was some upward pressure from clothing prices in the month as January's sales were less deep than in 2011, after retailers brought their turn-of-the-year clearances forward to draw in customers.
The CPI rate has now fallen 1.2 percentage points since November, the largest fall over two consecutive months in just over three years.
The figures come a day ahead of the Bank of England’s quarterly inflation report, which is expected to confirm its belief that inflation will hit the 2 per cent target and possibly fall further in early 2013.
The data adds further weight to its decision last week to pump an extra £50 billion into the economy through its quantitative easing programme.
Michael Ward, president of Birmingham Chamber of Commerce Group (BCCG), said it was predicted that inflation would continue to fall dramatically as many of the factors which drive inflation upwards begin to abate, such as falling energy levels.
He said: “Heavy discounting from supermarkets and retailers also appears to have helped stem inflation with shop price inflation falling to a 22-month low of 1.4 per cent and food price inflation is at an 18-month low at 3.7 per cent.
“We urge the Bank of England’s Monetary Policy Committee (MPC) to extend its quantitative easing programme even more and to buy corporate bonds, rather than government bonds, ensuring that the impact is felt in the business community.”
Mike Ashton, spokesman for West Midlands Chambers of Commerce said: “It is good news but inflation is still 1.5 per cent above the Bank of England’s target rate. Inflation is consistently cited by chamber members as the main factor putting pressure on them to raise their prices, so any reduction must be welcomed.
“Every effort must now be made to ensure that this reduction in the rate of inflation begins to translate into consumer spending which has been particularly weak for many months. We would urge the Monetary Policy Committee (MPC) to maintain interest rate levels of 0.5 per cent to help boost consumer spending.”