Inflation is set to fall by a significant margin as measured by the Consumer Prices Index this week, spelling relief for savers that have been fretting over the meagre gains from their low interest rates getting washed away by the rising cost of living.

In the largest monthly fall in several years, the Bank of England’s CPI is expected to decline to 4.2 per cent this week, giving savers and spenders alike cause to celebrate.  The last year’s final quarter saw the CPI creep above 5 per cent, something that savings account holders were fearing, as there are no savings products on the market that can overcome inflation-linked interest erosion.

Sales performance in December was at its highest level since January 2011, according to the British Retail Consortium, with a marked improvement over the dip experienced in November.  However, consumers’ circumstances seem to be staying the same throughout, according to Stephen Robertson, director general of the BRC.

2012 will most likely be just as challenging as the previous year from an economic perspective, Mr Robertson said, citing that the uptick in spending that traditionally accompanies the run up to the festive season has died down, leaving consumers with plunging confidence levels.

The inflation on non-food items plummeted to a 0.3 per cent two year low in December as retailers heavil discounted items such as electrical goods and clothing, according to the BRC.  This was welcome news for consumers who saw living standards and real income decline throughout the past year.

Shop price inflation is at 1.7 per cent, a 16 month low, according to the director general.