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UK inflation falls to 0.3%

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UK inflation has fallen to 0.3 per cent in the year to April 2016 marking the first fall since September, figures from the Office for National Statistics show.

The new CPI rate fell from 0.5 per cent in March.

The drop was mainly due to falls in air fares, clothing, vehicles and social housing rent.

However, motor fuels, recreational goods, cultural services and food prices remained unchanged between March and April 2016, having fallen between the same two months a year ago, the ONS says.

The Bank of England recently said it expected inflation to increase in the second half of the year.

Aegon UK investment director Nick Dixon also expects inflation figures to improve later this year.

He says: “While inflation was weak in April, we may be closer than forecasts indicate to the inflection point when inflation starts to accelerate. A combination of rising energy costs, higher US rates, and lower sterling could bring inflation forward and trigger rising interest rates before the end of 2016.”

But IHS Global Insight chief UK and European economist Howard Archer says inflation will rise only if the UK votes to remain in the EU in June’s referendum.

He expects inflation to reach 1 per cent in the fourth quarter of 2016 and hit the BoE target 2 per cent in late-2017.

Archer says: “The inflation and growth outlook will likely be very different should the UK vote to leave the EU in June’s referendum. Should the UK vote to leave the EU, there are very good reasons to believe that a sharp fall in sterling will occur with very significant inflationary implications.

“At the same time though, there is a very real risk of markedly weakened economic activity, particularly resulting from heightened uncertainty among businesses and consumers, leading to less investment, higher unemployment  and reduced consumer spending.”

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