A raft of high-street promotions in the run-up to Christmas has triggered the largest drop in inflation in nearly three years.
Consumer prices index (CPI) inflation dropped to 4.2 per cent in December from 4.8 per cent in November, the Office for National Statistics (ONS) said, equal to the decline between March and April 2009.
The drop was driven by a 2.8 per cent plunge in the price of clothing and footwear as retailers slashed prices to pull in more customers in the run-up to Christmas.
But there was less evidence than expected of the impact of the supermarket price war started in early October, as food prices rose by 1.4 per cent month on month.
West Midlands business leaders have expressed relief at the announcement but at the same time called for the Bank of England to increase quantitative easing.
Michael Ward, president of Birmingham Chamber of Commerce Group (BCCG), said many of the factors which drive inflation upwards are largely out of the control of the Bank of England.
But he said: “We would urge the Monetary Policy Committee to increase the current quantitative easing (QE) programme from £275 to £325 billion.
“We believe this would help create a much-needed boost for the economy in this period of flat growth and demand.
“The fall in inflation has been helped by heavy discounting from retailers over the Christmas period and recent cuts in energy tariffs by the big utilities.”
Mr Ward added there was expectation inflation would continue to fall but said it was also vital the Bank of England held interest rates at 0.5 per cent.
John Rider, Midlands chairman of the Institute of Directors said: “What goes up must come down.
“We are finally seeing the sharp falls in inflation which we expect to continue. VAT effects falling out of the year-on-year index, lower utility prices and weakening demand should exert strong downward pressure on inflation in 2012.
“Over recent years the inflation story has been all about overshooting. Looking ahead to 2013 it could be all about undershooting. The latest inflation figures suggest that quantitative easing will be expanded in February.”