London Retail Price Inflation Falls the Most Over the Past 12 Months
Economics / Inflation Jun 07, 2009 - 08:21 PM GMTLondon experienced the largest decline in retail prices1 over the past year with a 2.8% fall between 2008 quarter one and 2009 quarter one, according to new research by Halifax. This was more than twice the 1.3%* fall for the UK as a whole. However, despite this, the overall price level in the capital remains higher than any other UK region. All 12 UK regions recorded a decline in retail prices over the past 12 months.
Mortgage interest payments have placed the greatest downward pressure on retail prices over the past year, falling by an average of 39%. The capital's average inflation rate dropped by more than elsewhere between 2008 Q1 and 2009 Q1 largely because mortgage interest payments account for a greater proportion of a Londoner's total weekly expenditure (12%) than in any other region (UK average of 9%).
Additionally, if mortgage interest payments had been excluded from the Halifax measure of regional inflation then retail prices in the capital would have increased by 5.4% over the past 12 months.
Suren Thiru, Halifax economist, said: "All UK regions have seen their retail price inflation rate turn negative over the past year, driven by mortgage interest payments that fell, on average, by more than a third. Those living in the capital have benefited most from the significant drop in mortgage interest payments, resulting in a bigger overall fall in retail prices in London than anywhere else in the UK."
However, although prices have fallen most in London, the general price level in the capital is still the highest in the UK."
Regional Inflation
The South West recorded the smallest fall in retail prices over the past year
East of England (-1.8%) and the West Midlands (-1.5%) recorded the next largest declines in retail prices after the capital. At the other end of the scale, the South West (-0.3%) experienced the smallest fall. However, the sizeable differences in retail price movements between UK regions over the year to 2009 Q1 narrow significantly if mortgage interest payments are removed.
London also sees the biggest change in its annual inflation rate
Over the past year, London experienced the largest change in its annual inflation rate. The capital's annual rate of -2.8% in 2009 Q1 was 8.9 percentage points lower than the 6.1% recorded in 2008 Q1. The East of England (-7.5 percentage points) recorded the second biggest change over the period, followed by the West Midlands (-7.2 percentage points). The smallest change was in Northern Ireland; down 5.6 percentage points from 5.2% to -0.4%.
Mortgage payments account for the smallest proportion of spending in Northern Ireland
In Northern Ireland, mortgage interest payments account for just 7% of the average household's weekly spend; less than in elsewhere in the UK. Largely as a result, Northern Ireland experienced the biggest fall in its annual inflation rate and the second smallest drop in retail prices (-0.4%) over the last year.
Little difference between regional inflation rates over the past decade
Although there have been sizeable variations in retail price movements between UK regions over the year to 2009 Q1, the variation over the longer term has been much smaller with differences between the regional inflation rates tending to level out.
The South West recorded the largest rise in retail prices over the past decade
Between 1999 Q1 and 2009 Q1, the South West saw the largest rise in retail prices over the decade (41.4%), followed by the South East (40.6%). Northern Ireland (36.3%) experienced the smallest increase in retail prices, just 5 percentage points lower than in the South West. The UK average over the period was 38.7%.
Inflation and spending by category
Clothing prices also down
Clothing and footwear was the only major spending category besides mortgage payments to record a price decrease over the past year (-6%). The largest proportion of weekly expenditure on clothing and footwear is in Northern Ireland (8.2%) followed by the North East (6.6%). In contrast, those living in the South East (4.7%) use the smallest proportion of their weekly spending on such goods.
Food and drink inflation remains high
Food and non-alcoholic drink recorded the sharpest rise in prices among typical UK household's between 2008 Q1 and 2009 Q1, with a 10% increase. This spending category takes up the biggest proportion of weekly expenditure in Northern Ireland (13.2%), followed by the West and East Midlands (both 12.6%). At the other end of the scale, food and drink accounts for the smallest proportion of weekly spending in London (10.5%).
Education costs3 see the sharpest increase over the past decade
Over the past decade, education saw the sharpest price increase, rising by 107%, followed by council tax (81%). Londoners use the highest proportion of their weekly expenditure on education (3.2%), while education takes up the smallest proportion of weekly expenditure in Scotland and the East Midlands (both 0.9%). At the other end of the scale, clothing and footwear (-26%) and communication (-13%) both saw a decline in prices over the period.
1Based on the Halifax measure of regional inflation
2Based on the ONS 2008 Family spending survey, report on the 2007 Expenditure and Food Survey
3 The education inflation index used in the release is based on RPI index on fees and subscriptions but with quarterly percentage changes
sourced from the CPI index on education.
Halifax is part of the Lloyds Banking Group
Tel: 01422 333829 Fax 01422 333007
Website: http://www.lloydsbankinggroup.com/media.asp
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