Inflation matched its lowest level on record in December when it fell to 0.5%, official figures showed today.
According to the Office for National Statistics (ONS), the Consumer Price Index (CPI) rate of inflation, which measures changes in the prices of the goods and services bought by households, fell to 0.5% in December from 1% in November.
This is only the second time since the ONS started tracking CPI in 1989 that inflation has fallen so low, with an 0.5% figure also being recorded in May 2000.
The biggest contributors to the fall in inflation were sliding fuel and food prices, according to the ONS.
Food and non-alcoholic beverages were 1.7% cheaper in December than the same month a year ago, the sixth month in a row of year-on-year declines.
These price falls have been driven by the intense price war between the major supermarkets, which are under pressure from discounters such as Aldi and Lidl.
Motor fuel costs fell 10.5% year-on-year, the largest fall since July 2009. The price of a litre of petrol fell by 13.6p between December 2013 and last month, with diesel 15p lower.
Over the month alone, a litre of petrol fell by 6.1p and diesel by 4.8p.
Flat household gas and electricity tariffs over the month – compared to the same period the previous year, when they were hiked sharply – also made a major contribution to the drop in CPI.
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'Putting more money in the pockets of hard-pressed consumers'
The fall in inflation will ease pressure on household budgets and chief secretary to the Treasury Danny Alexander says: "These figures show that the falling price of oil is working its way into lower prices.
"This acts like a giant tax cut for the economy, putting more money in the pockets of hard-pressed consumers.
"I won't let up on pressing every company and organisation that is benefiting from oil price falls to pass them on in full and quickly."
The plunge to below 1% means that Bank of England Governor Mark Carney will need to write a letter of explanation to Chancellor George Osborne because it is more than 1% away from the Bank's 2% target.
Bank of England policy-makers have said they expected CPI to fall below 1% and remain there for months to come.
The Retail Prices Index (RPI), which includes housing costs, stood at 1.6% in the year ending December 2014, down from 2% in November. At its lowest point, RPI was -0.8% in October 2009, which meant that prices were actually falling.