Inflation dips to 12-year low

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Inflation has fallen to a 12-year low of 1 per cent and is set to slip further after the collapse in the price of oil drove down petrol prices and other costs.

Brent crude is now below $60 a barrel for the first time since 2009, meaning the energy industry benchmark has fallen by about 50 per cent since the summer amid concerns about weakening demand and oversupply.

The recent slump caused the Consumer Price Index (CPI) measure of inflation to drop more steeply than expected in November, from 1.3 per cent in October, the Office for National Statistics (ONS) said.

It also meant Bank of England governor Mark Carney only just avoided having to write to Chancellor George Osborne to explain why inflation is more than 1 per cent off its 2 per cent target. However, Mr Carney has already acknowledged that he is likely to have to write to Mr Osborne in the coming months.

The fall in inflation adds to hopes of a rise in real-terms wages which have lagged behind the increasing cost of living for six years.

Most recent figures for the three months to September showed pay rising by 1 per cent year on year and regular pay excluding bonuses by 1.2 per cent. Latest data will be published today.

Low inflation also gives the Bank of England leeway to leave historically low interest rates on hold at 0.5 per cent, keeping the pressure off borrowers. CPI has not been as low since 2002.