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News - 14 January 2014

UK inflation falls to Bank Of England Target Of 2%

Annual inflation has exceeded the Bank's 2% target every month since December 2009, eroding the spending power of households who have seen wage growth either largely remaining stagnant or rise at a substantially lower rate.

However, the latest figures for December from the Office for National Statistics (ONS) show that lower food prices have helped inflation fall back to the Bank of England's target rate of 2% for the first time in over four years.

The UK's inflation rate, as measured by the Consumer Prices Index, fell to 2% in December, down from 2.1% the month before. However, Inflation as measured by the Retail Prices Index (RPI) rose to 2.7% from 2.6% in November.

Lavinia Newman, founder of ABDS comments:
“The sixth successive monthly drop in inflation eases pressure on the Bank of England - which would have had to reconsider its low interest rate policies should inflation have been going in the other direction. The BoE still have the other target figure of a 7% jobless rate to consider before they will raise interest rates.”

The ONS said the fall was caused by slower increases in the prices of food, with the rise in prices of both food and non-alcoholic drinks was the smallest it had been since 2006. However, there was likely to be a greater contribution to inflation from rising energy bills in the months ahead after only a minimal impact in December.

The Prime Minister David Cameron said:
"It's welcome news that inflation is down and on target. As the economy grows and jobs are created this means more security for hard-working people."

Jeremy Cook, chief economist at currency exchange specialists, World First, said: "The lack of inflation will help stay their hand especially if the pace of job creation seen in the second half of last year also slows."

Chris Williamson, chief economist at Markit, said he now expected inflation to stay close to its 2% target for "some time to come".

Labour Treasury spokeswoman Catherine McKinnell said: "This small fall in the inflation rate is welcome, but with prices still rising more than twice as fast as wages the cost-of-living crisis continues.

If you need any help and advice on Business Financial Planning and Development within the manufacturing and construction sectors, don’t hesitate, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your Business planning.

ABDS Chartered Certified Accountants of Southampton.
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