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Inflation falls to 3%

UK Consumer Price Index fell in January to 3 per cent down from December’s 3.1 per cent.

This is the fourth consecutive month that inflation has fallen, from a high of 5.2 per cent in September 2008.

The Retail price Index, which includes wages and house prices fell to 0.1 per cent, its lowest amount since 1960.

Liberal Democrat Shadow Chancellor Vince Cable says: “One of the few reassuring facts for hard-pressed families is that inflation is now virtually disappearing.

“It is becoming clear that for the foreseeable future there is a higher risk of deflation than inflation, which is why it is inevitable and sensible that the Bank of England should be moving towards expansion of credit and the money supply directly.”

Cable’s fear was answered by BoE deputy governor for monetary policy Charles Bean yesterday. He told the National Farmers’ Union Conference that the Asset Purchase Facility, which will allow the Bank to buy £50bn in commercial paper and securities, will now be used as an inflationary weapon by the MPC as interest rates diminish.

He said: “This will push down yields on a wider range of assets and increase the supply of broad money. Both should help to boost nominal spending.”

Bean argued that the asset scheme was not “printing money”, rather it is a weapon to “push up the rates of growth of the supply of money and credit”.

He said: “We need to complement bank rate with another tool that is more directly focussed on the source of the problem.”

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