UK inflation dropped from 4.2% to 3.6%, as announced by the Office of National Statistics yesterday, still a long way from the 2%  Bank of England's target which the B of E believes will be achieved before the end of the year.

The main cause of this is the unwinding of the VAT increase last year, following the temporary decrease from 20% to 17.5%, one of the efforts to stimulate the economy at a black time and we are now back to the higher level, so this drop in the Consumer Price Index (CPI) was predictable and came in at around the expected level.