LONDON, Jan. 20 (UPI) -- Discounts, tax cuts and falling commodity prices pushed Britain's inflation rate to its largest decline in 17 years, the government said.
Britain's Consumer Price Index dropped from 4.1 percent in November to 3.1 percent in December, The Times of London reported Tuesday.
Core inflation, which excludes food and energy prices, fell 1.1 percent, down from 2 percent in November.
The Bank of England has predicted the CPI could drop to 1 percent in 2009.
Jonathan Loynes at Capital Economics warned that deflation, a period of falling prices, could be around the corner. "The fact that weaker consumer demand is already putting significant downward pressure on core inflation points to a growing danger … of deflation," he said.
But, Global Insights economist Howard Archer suggested a recent VAT (value added tax) cut was not fully passed on to consumers.
Inflation's decline "was significantly less than expected given the VAT cut, lower oil prices and apparent intensified discounting," he said.
"This suggest that not all of the VAT cut was passed on," he said.
