Inflation fell to 3.1 per cent in December, down from 4.1 per cent in November, the Consumer Prices Index showed.

The December reduction in the VAT rate made the largest contribution to the 1 percentage point change, the Office for National Statistics said.

Inflation was also affected by the fall in the prices of petrol and diesel, and greater discounting in Sales than in the pervious year.

Clothing and footwear made the largest downward contribution to the CPI, with the VAT cut lowering prices. Overall the price of children’s clothing fell by more than the previous year due to heavier discounting.

Furniture also made a big contribution to the CPI’s fall.

The Retail Prices Index annual inflation fell from 3 per cent to 0.9 per cent – the fastest monthly deceleration since 1980. The plunge was largely due to mortgage interest payments, as most lenders passed on November’s decrease in the Bank rate.

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