By Jonathan Davies
The UK rate of inflation fell to 0.5% in December from 1% in November, according to the Office for National Statistics (ONS).
It is the joint record lowest inflation rate ever seen. It hasn't been this low since May 2000.
December's figure takes inflation below half of the Bank of England's target of 2%. It means the governor of the Bank of England Mark Carey will now write to the Chancellor George Osborne to explain why.
"The main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the calculation and the continuing drop in motor fuel prices," ONS said.
"Petrol and diesel prices are now almost 25p per litre below their peak prices in April 2012."
The Institute of Directors (IoD) said the news is not a concern for businesses. James Sproule, Chief Economist at the IoD, said: “This is good news for the vast majority of businesses and households in the UK.
“In the UK, lower prices driven by a fall in the cost of oil will provide a boost to the economy, and underpin domestic confidence and spending. By contrast, there are growing concerns about the situation in Europe, where deflation is being driven — at least in part — by depressed consumer confidence, manifesting itself in delayed purchases. This is the difference between the ‘good’ and ‘bad’ deflation which we are hearing so much about."
Jeremy Cook, chief economist at World First, said: “Oil and food prices are the obvious drags on an inflation basket that has seen the rate of price increases fall by 75% in the past 12 months.
“Supermarket price wars on everything from milk to marmalade - alongside the continual, pernicious compression of energy prices - are hurting the inflation outlook in the UK. Of course, this is not exactly bad news for the consumer or the economy as a whole."
The pound sterling reacted negatively to the news, falling sharply against the US dollar. Prior to the announcement it was trading at roughly $1.512, but fell quickly to $1.5079.
The ONS also revealed figures for house price inflation. In November, prices were up 10% compared with November 2013. That is a slight fall from 10.4% in October.
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