According to the Office of National Statistics, the Consumer Prices Index fell from 3 per cent at the end of last year to 2.7 per cent, while the Retail Price Index (RPI) also declined from 4.4 per cent to 4.2 per cent.
However, the Bank warned another rate rise was increasingly likely as there were still worries about inflation over the medium term
Mervyn King, governor of the Bank of England, commented: “Just as 3 per cent inflation did not mean the end of the world was nigh, so 2.7 per cent does not mean we can ignore concerns about inflation ahead. So the Monetary Policy Committee (MPC) will look through the short-run volatility to the outlook in the medium term, and remains ready to take whatever action might be necessary.”
Keeping inflation in check was the main reason behind the MPC’s decision to increase rates three times in six months.
However, King believed the reduction in energy prices would keep inflation under control and reaffirmed the market’s forecast that rates would peak in the second half of 2007.
Simon Biddle, head of marketing and communications at Infinity Mortgages, said: “The reduction is good news for the overall economy. It shows the rate increases are now filtering though and while another drop in inflation would be welcome, we are hopefully back on track.”
