Inflation fell sharply in January as the impact of last year’s VAT rise annualised.

The Consumer Prices Index (CPI) fell to 3.6% in January, down from 4.2% in December, according to the Office of National Statistics.

Retail Prices Index inflation fell to 3.9% from 4.8% in December.

The drop brings CPI inflation to a 14-month low, however the rate remains well above the Bank of England’s 2% target.

The rate of inflation is tipped to continue to fall throughout the year.

BRC director general Stephen Robertson said the fall was good news for the consumer. He said: “On its own this isn’t going to produce the substantial revival in consumer confidence which retailers and the economy desperately need. But the fall is good news for hard-pressed families who’ve faced uncomfortably high levels of inflation over the past couple of years.”

However Robertson said the fall was clear evidence that April’s Business Rates rise should not be based on last September’s 5.6% RPI inflation which was at a 20 year high.

He said: “With the Bank of England predicting inflation to fall further, both Governments should sharply reduce that figure to avoid the damage that will be done to jobs and investment.”