MercoPress. South Atlantic News Agency

UK inflation drops fastest rate in 16 years; deflation fears

Inflation in the United Kingdom is dropping at its fastest rate for 16 years thanks to falling fuel prices. The Consumer Prices Index (CPI) slowed to 4.5% in October from 5.2% the previous month.

The 0.7% percentage point decline is the biggest monthly drop since April 1992, the UK Office for National Statistics (ONS) said. As crude oil prices plummet from their record highs of mid-July, the average price of a litre of petrol fell 7.1p to 104.5p in the month to October, with diesel dropping 7p to an average 116.3p. Although CPI is still more than double the Bank of England's 2% target, the bigger-than-expected monthly fall brings home warnings of the threat of deflation - negative inflation - next year from Bank Governor Mervyn King and Prime Minister Gordon Brown. Soaring food, energy and petrol costs have pushed the CPI to record highs this year but the latest lower figure also reflected falling meat prices in October as supermarkets cut prices, compared with 12 months earlier when costs were on the way up. Meanwhile, the lower crude prices saw transport costs ease at their quickest rate for almost 20 years as the cost of sea and air transport as well as air fares fell. The wider measure of inflation, the Retail Prices Index, fell to 4.2% in October from 5% the previous month, the biggest slowdown in the annual rate since January 1993. Falling fuel costs contributed to the decline but the RPI also includes house prices hit by the ailing property market. Mr King warned in the Bank's latest inflation predictions last week that this rate was "very likely" to turn negative next year. The Bank has warned of a danger of undershooting the CPI 2% target next year as prices fall in a looming recession -