(1888PressRelease)
February 22, 2007 - Although this is still considerably higher than the government's target of two per cent, it represents a huge breath of fresh air for a housing market that had been reeling from three interest rate rises since August 2006, the first increases for two years.
Recent statistics from Nationwide showed that these rate rises were already having an impact on the industry as the previously buoyant market slowed somewhat rising by just 0.3 per cent compared to 1.2 per cent in December.
Added to the increasing affordability issues facing first-time buyers, which is warding off entrants to the market, the downturn threatened to undo the six months of strong growth in the latter half of 2006.
However, the rises are clearly having an impact and as the last increase was only in January analysts believe that the Bank of England's monetary policy committee (MPC) will hold off from upping rates for the short-term future.
Howard Archer, chief UK and European economist at Global Insight, said that the MPC will be pleased with today's figures: "This is a much more benign set of inflation data than expected, which will be of major relief to the Bank of England."
But he added that economic conditions are not wholly favourable just yet.
"Nevertheless, significant medium-term inflation risks remain, as there is still a possibility that wage settlements will move markedly higher in the 2007 pay rounds," he said.
"Consequently, we still think interest rates will reach 5.5 per cent, but this should prove to be the peak."
The largest downward pressure on the consumer price index (CPI) - the government's measure of inflation - was transport cost. Fuel and lubricants were down and air travel also reduced its prices due to lower cost fares to European destinations. Other contributory factors included food and non-alcoholic drinks.
Although critics believe that the government uses the CPI as their measure of inflation in order to hide the true figure, the alternative, the retail price index (RPI), also fell last month.
This measure, which includes mortgage repayments and wage negotiations stood at 4.2 per cent last month in comparison to 4.4 per cent in December. The main factor in this fall was found to be household goods.
