Wages have failed to keep up with cost of living in UK
Wages have failed to keep up with cost of living in UK  (Reuters/Neil Hall) Reuters

Consumer Prices Index inflation in the UK fell to 3.6 percent in January, its lowest level since November 2010.

This is down on December's 4.2 percent figure and from a peak of 5.2 percent in September.

"The largest downward pressures to this change came from fuels and lubricants, products bought in restaurants and cafes, tobacco, vehicle maintenance and repair, the purchase of new vehicles and alcoholic beverages," the Office for National Statistics said.

The Bank of England predicts that inflation will fall sharply in 2012, before reaching the government's two percent target by the end of the year.

Falling inflation is welcome news for squeezed households, which have been struggling to meet the cost of living.

Wages are stagnant for many and not rising at anywhere near the rate of inflation.

Britain's economy contracted by 0.2 percent at the end of 2011 and many forecasters are predicting a full-blown double-dip recession in the first half of 2012.

Unemployment, currently at a 17-year-high, is rising and due to hit 3 million out of work going into 2013.

The Bank of England recently announced a £50bn increase to its quantitative easing programme - which essentially means it prints money to buy up assets and improve liquidity in the markets.

This takes the total cost to £325bn.

Critics of the programme say this will slow down the rate at which inflation drops, while proponents say there is room to move as inflation will fall sharply.

Unemployment Bank of England