Inflation falls as mortgage lending drops

Inflation fell to 2.7 per cent in January, helped mainly by lower transport costs, as mortgage lending plummeted by 14 per cent in December, dampening the prospect of the Bank of England increasing interest rates next month.However Despite the fall, many analysts predict that inflation will soon rise again.

Figures released this morning by the Office for National Statistics (ONS) indicate that consumer price inflation has contracted from a 3 per cent peak over Christmas.

Retail price inflation dropped in January to 4.2 per cent from a 15-year high of 4.4 per cent in the previous month.

As a result, the pound fell against the dollar to 1.9423 from 1.9472.

Mortgage lending fell sharply, by 14 per cent, in December, compared with an all-time high of £33.2 billion in November.

However, with total lending at £28.6 billion, it was still the highest December figure on record, according to the Council of Mortgage Lenders.

The ONS revealed that inflation had contracted because of a decline in the price of food, non-alcoholic beverages and fuel. Travel costs also fell.

Homeowners are spending 17.9 per cent of their income servicing their mortgages.

However, first-time buyers, who accounted for 36 per cent of the market, rose by 19 per cent, as house values increased by 34 per cent.