Inflation fall raises pay hopes

The Consumer Prices Index (CPI) rate dropped to a new four-year low of 1.6%, from 1.7% in February, according to the Office for National Statistics (ONS).

It comes a day ahead of separate ONS labour market statistics which are expected to show that regular pay is rising at a rate of 1.8%, up from 1.3%.

CPI has not been lower since October 2009, when it stood at 1.5%. The latest fall in inflation was widely expected by economists.

It is likely to herald an end to a six-year period when pay growth has been lagging behind the rise in the cost of living, effectively shrinking workers' spending power.

Chancellor George Osborne said: "These latest inflation numbers are welcome news for families.

"Lower inflation and rising job numbers show our long term plan is working, and bringing greater economic security.

"But there is still much more we need to do to build the resilient economy I spoke of at the Budget."

Earnings have not increased at a higher rate than inflation since a brief spike in March and April 2010 and have not consistently been improving since 2008.

An end to the squeeze will be seen as a watershed moment in the recovery, and likely to be seized upon by the Coalition to blunt Labour charges that the economic upturn has yet to benefit ordinary working families.

The latest figures showed pressure on households was partly eased by food and non-alcoholic drink inflation falling to a new four-year low of 1.7%. It was last lower, at 1.3%, in February 2010.

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Inflation fall raises pay hopes