Inflation has fallen unexpectedly, reinforcing the Bank of England’s strategy of keeping interest rates unchanged.

Figures published today show inflation dropped 0.4% to 4% – double the Bank’s
inflation rate target of 2%.

Bank of England governor Mervyn King has repeatedly urged taking a long-term
view of the economy and has insisted the current high rate of inflation would fall
back.

Nevertheless, although inflation has slipped back, other financial data published
to day highlights the fragility of the UK economy.

In March, retailers suffered the worst fall in sales since records started in 1996 –
down 1.9% on March 2010, according to the British Retail Consortium. Like-for-
like sales were 3.5% lower, against a 4.4% increase in March 2010.

Sales mainly fell in shops, but online shopping slowed as well, with sales slowing
to 7.5% growth compared with March 2010, but decreasing from 10.4% growth
in February 2011.

Stephen Robertson, director general of the British Retail Consortium, said: “Non-
food retailers were particularly hard-hit.

“Uncomfortably high inflation and low wage growth have produced the first
year-on-year fall in disposable incomes for thirty years. Mounting fuel and utility
costs, falling house prices, higher VAT and the prospect of more tax rises and job
losses left people unwilling to spend unless they really had to.

“These pressures aren’t going away and the arrival of higher national insurance
is likely to compound them in the immediate future.”

House prices and sales remained static for the second month in a row, according
to the Royal Institution of Chartered Surveyors (RICS).

London and the southeast continued to shine as the only region with any
expectation of rising prices, deepening the rift between the north and south for
homeowners.

Meanwhile, The International Monetary Fund (IMF) has cut growth expectations
for the UK economy for this year to 1.7%, down 0.3% from January’s forecast.
The UK was the only European Union economy to be downgraded by the IMF this
month.

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