Deflation concerns as UK inflation falls further

The Retail Price Index (RPI) that measures inflation is estimated to have dropped further in 2009, having already dropped by 1.3 percent in January from December, which has driven the annual increase to just 0.1 percent which is the lowest since March 1960.

The cost of living according to the RPI dropped, thanks in part to the fall in mortgage interest and a host of other expenses as the VAT cut has also kicked in.

The Bank of England has reduced interest rates from 5 percent in October to 1 percent currently, which has meant that consumers and businesses should be in a position to begin spending again.

Since September where the UK has been in the midst of the worst recession for over 20 years, inflation has been falling as price cuts, falling house prices and unemployment reduces the demand for commodities.

Oil has been at the centre of price cutting, as crude oil has fallen to just $40 a barrel from its peak of $147 in July last year.

Retail prices have been cut drastically by retailers even prior to the Christmas period in a bid to drum up business and persuade weary shoppers to part with their cash.

Following the news the pound strengthened against the dollar to $1.4270.

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