Inflationary pressures fell in the UK in December, as CPI consumer price inflation fell back to 4.2% over the year, down from 4.8% for the year to November.
The last time there was a sharper decrease in the annual inflation index was between November and December 2008.
The annual rate of inflation excluding the impact of indirect tax changes, such as VAT, was 2.8% for the year to December, down from 3.4% in November.
In January 2012 the effect of the January 2011 2.5 percentage point VAT hike will drop out of the year-on-year comparisons.
According to Daniel Solomon, Economist, Centre for Economics and Business Research, this implies that another steep fall in the headline inflation rate can be expected soon as CPI aligns more closely with the inflation measure which excludes indirect tax changes.
He said: "Looking behind the headline figures, the decrease in inflation was driven mainly by falls in the prices of petrol and clothing, and gas prices which were unchanged in December compared to a rise last year.
"Although they are not weighted heavily in the CPI calculations, a 9.0% December year-on-year rise in the prices of alcohol and tobacco kept the headline index from falling even more sharply.
"Looking forward, although inflation is currently well above the Bank of England's 2.0% medium-term central target, the rate at which consumer prices increase is expected to decline steeply over 2012. The BoE predicts that consumer price inflation will fall well below the 2.0% target by the end of 2012 and Cebr predicts that inflation will continue to remain well below the BoE's central target for most of 2013.
"Several factors will drive this decline in the rate at which the cost of living is expected to rise.
"Previous steep increases in import prices will also fall out of the year-on-year comparisons. The UK's biggest trading partner, the euro zone, is suffering from anaemic growth and is mired in several sovereign debt crises.
"This means that a lack of export opportunities will weigh on UK economic growth in 2012. To the extent that limited export opportunities keep the UK growth rate low in 2012, this will subdue the 2012 inflation rate. The main upside risks facing the inflation rate are geo-political concerns.
"A crisis centring on the Straits of Hormuz or the broader Persian Gulf could cause a dramatic rise in the oil price and, therefore, cause increased inflation. Overall, inflation is likely to be subdued next year barring a large commodity price shock or an enormous and unexpected increase in the BoE's quantitative easing programme."
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