Bank of England's Inflation Target: Falling Below

There are new forecasts that inflation in the UK have now fallen to its lowest level in almost five years, this is much lower than the Bank of England’s target of 2%. There are a number of factors as to why inflation has fallen; these include falling fuel costs, food inflation now being weaker and the huge range of summer sales on our high streets.

The Guardian reports that it is the combination of these that have pushed inflation to 1.5 per cent in July, compared to 1.8 per cent in June. This is now the lowest inflation level since November 2004.

When you mix mortgage costs into the inflation forecast, this has declined to 1.7 per cent, compared to 1.6 per cent in June. National Statistics will release the full figures this morning.

Mervyn King, governor of The Bank of England has warned that inflation looks set to continue its decline, we could be looking at a level of 1 per cent of below over the next few months. The recovery of the economy will be a slow process, so interest rates looks set to remain as they are over the coming months.