The inflation rate has dropped to the joint lowest level since records began in 1996, growing just 0.5% in the year to December 2014.
The Office of National Statistics reported this morning that The Consumer Prices Index had dropped from 1.0% in November. The last time the CPI stood at 0.5% was in May 2000.
CPIH (not a National Statistic) grew by 0.6% in the year to December 2014, down from 1.0% in November.
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Guy Ellison, head of UK equities at Investec Wealth & Investment, said: "UK inflation on a CPI basis undershot expectations for December, coming in at 0.5% year-on-year and driven by a combination of lower food and energy bills.
"The core reading, excluding these more transient factors, actually increased marginally to 1.3% year-on-year and it is this number which the Bank of England should focus on when considering rate policy. Indeed, with the ongoing fall in the oil price there is a chance that headline CPI approaches 0% in the coming months."
He added: "The broader reaction to today's data is likely to be modest weakness for sterling, as the need for the BoE to raise rates sooner rather than later to ward off inflation diminishes."
Ben Brettell, senior economist at Hargreaves Lansdown, said: "Having hit 1.9% in June, inflation has been steadily falling over the second half of 2014, and the recent sharp fall in the oil price has accelerated this trend. Food and motor fuels have historically accounted for a large proportion of the inflation rate, but in the year to December food prices fell by 1.9% and motor fuels by an enormous 10.5%.
"Mark Carney will now be required to write a letter of explanation to the chancellor, but in truth the fall in the oil price makes this an easy letter to write."
The main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the calculation and the continuing drop in motor fuel prices.
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