Lower electricity and gas bills helped the UK’s rate of inflation fall to 3.4 per cent in February - a 15-month low, but failed to ease fears that high oil prices may prevent it falling as quickly as previously thought.
Economists warned that the Bank of England’s prediction of inflation hitting the Government’s 3 per cent target by early next year could be “optimistic”, as rising oil prices are likely to slow the speed of progress over the coming months.
The Consumer Prices Index fell by 0.2 per cent, from 3.6 per cent in January, with the Office for National Statistics saying the fall was the result of energy bill cuts being passed on to families squeezed by high prices and sluggish wage growth throughout 2011.
In February, domestic electricity bills fell by 1.3 per cent, while gas bills fell by 0.9 per cent. Scottish Power reduced gas tariffs by an average of 5 per cent for around 1.4 million customers last month, while a 6 per cent fall in electricity bills benefitted 3.7 million E.ON customers.
However, fighting in Syria and tension in Iran has seen the cost of Brent crude oil to rise by nearly 25 per cent to US$125 per barrel. The average UK petrol price rose to 135.1p per litre in February– up 1.9p, while diesel hit a record high of 143p per litre – a rise of 1.4p.
The resurgent price of oil reportedly prompted President Barack Obama and Prime Minister David Cameron to discuss releasing strategic reserves to curb further rises.