Rate dropped to 1.9% in January, the first time it has dipped below target in more than four years
Inflation fell below the Bank of England's 2% target for the first time in more than four years in January, brightening the outlook for Britain's squeezed consumers.
The annual rate of inflation dipped to 1.9% last month from 2% in December, according to the Office for National Statistics, driven lower by prices of furniture and other household goods, alcohol and tobacco, DVDs and tourist attraction entry costs.
It was the first time since November 2009 that inflation has fallen below target. Economists said the figures reflected particularly aggressive discounting this year as retailers competed in the January sales.
Inflation has been falling steadily in recent months after reaching a peak of 5.2% in September 2011. It finally returned to the 2% target for the first time in four years in December.
Economists said inflation was likely to fall further in the coming months, boosting the chance that wage growth will outpace inflation in 2014 for the first time in years, easing the pressure on household budgets.
Wage growth was just 0.9% in the latest available data for the three months to November, still less than half the inflation rate.
"There is a good chance that CPI inflation will fall to as low as 1% by the end of this year and remain subdued thereafter," said Samuel Tombs, UK economist at Capital Economics.
"This should enable real earnings to rise for the first year since 2007 and allow the [Bank's] monetary policy committee to keep interest rates on hold until well into next year."
Despite a backdrop of falling inflation and economic growth, the Bank of England made it clear last week it is in no hurry to raise interest rates – which have been at an all-time low of 0.5% since March 2009 – suggesting there would be no rise until after the general election next year.
The Bank's governor, Mark Carney, said its policymakers would not take risks with this recovery, which is as yet "neither balanced nor sustainable".
The retail prices index, historically used to calculate wage rises, rose to 2.8% in January from 2.7% in December, driven higher by insurance, air fares and fuel prices.
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