Labour Research (June 2001)

News

Inflation low for polling day

The last annual inflation figure before the election showed a sharp fall from 2.3% to 1.8% in April.

The largest downward pressure came from changes in housing costs, due to the end of the effect of MIRAS tax relief, which was abolished in April 2000. In addition mortgage interest rates fell this April compared to no change a year ago.

National Statistics said another large downward effect came from clothing and footwear prices, particularly women's and children's clothes. And motoring costs also dropped due to fuel duty cuts in the March Budget.

The government's preferred measure, the underlying rate, which excludes mortgage interest rates, rose slightly in April from 1.9% to 2.0% but is still well within the government's target of 2.5%.

Just before the last election, the headline rate of inflation was 2.4%. In the early period of the Labour government it rose to a peak of 4.2% in May 1998 and then fell progressively to a low of 1.1% in August and September 1999.

More expensive mortgages following increases in interest rates pushed inflation up to 3.3% last June and July since when the trend has been downwards. And with the recent cuts in interest rates yet to feed into the calculations, inflation looks likely to remain below 2% for the rest of the year.


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