By Marcus Leach

A slow down in food and fuel prices has seen the rate of inflation in the UK fall to 2.8% in May, its lowest level since December 2009.

The Office for National Statistics revealed that the Consumer Prices Index (CPI) measure fell to 2.8% in May from 3% in April, whilst the Retail Prices Index (RPI) measure fell to 3.1% from 3.5% in March.

The drop will come as welcome news to the Bank of England Governor, Sir Mervyn King, as it helps the overall rate head towards the 2% target.

“While oil prices were rising, news channels went bananas for a ‘petrol crisis’, but there has been virtually no coverage of the 26% fall in the price of Brent crude since March, as it has been drowned out by the on-going crisis in the Eurozone," Jeremy Cook, chief economist at World First, the currency brokers, said.

“This, alongside the continuing lack of demand due to fears over the global economy, has meant that inflation has continued to fall closer to target through the coming months.

“2.8% is the lowest level since December 2009 and will trigger a sigh of relief from Threadneedle St. as it gives the Bank of England further leeway with possible further expansionary monetary policy, such as interest rate cuts or additional asset purchases.

“We expect tomorrow’s (Wednesday's) Bank of England minutes will show the decision to hold QE at the previous meeting was a lot closer than most expected.

“Unfortunately, prices are still increasing at a faster rate than wages and these pressures are unlikely to abate for a long time…”

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