Business World

Tuesday 21 November 2017

UK inflation falls to lowest since records began in January

Bank of England Governor Mark Carney
Bank of England Governor Mark Carney

British consumer price inflation fell last month to its lowest level since records began in 1989, and it looks set to fall further still, easing a squeeze on consumers just as national elections approach.

Official figures on Tuesday showed the annual rate of consumer price inflation fell to 0.3 percent in January, as expected in a Reuters poll, from 0.5 percent in December.

The tumble largely reflected a slide in global oil prices, which last month fell to their lowest level in almost six years at below $45 a barrel, as well as lower food prices.

Coming less than three months before a parliamentary election, Prime Minister David Cameron will welcome the figures as good news for households, boosting their spending power after years of weak wage growth.

The Official for National Statistics estimated January's CPI figure was the lowest since 1960, using models which go back before the introduction of the index.

The plunge in inflation could also delay a first interest rate rise by the Bank of England since the financial crisis, if price falls spread beyond food and energy.

The fall of inflation would have been sharper but for a softer slowdown in the fall in clothing prices in monthly terms, which the ONS attributed to a greater number of discounts in December than the previous year.

Most economists say Britain, where consumer spending remains strong and wages are starting to rise, faces less danger of deflation than the euro zone, where falling prices have sparked fears of a Japan-style economic stagnation.

Food and non-alcoholic drink prices, which have been pushed down by a supermarket price war and lower commodity prices, fell 2.5 percent compared with a year earlier -- their biggest fall on record.

Last week, BoE Governor Mark Carney said inflation would probably soon fall below zero due to tumbling oil prices. But the Bank forecast that inflation will rebound to hit its 2 percent target in about two years' time.

In a separate release on Tuesday, the ONS said prices at the factory gate fell 1.8 percent in the year to January, the biggest decline since records began in 1997.

In December alone, crude oil prices paid by British manufacturers fell by 20.2 percent from November -- the sharpest drop since December 2008 when the world economy was deep in a financial crisis.

BoE Governor Carney has described the fall in oil price as unambiguously positive for the UK economy.

The ONS also said house prices in Britain rose 9.8 percent in yearly terms in December, slowing from 9.9 percent in November, adding to other signs of cooling in the housing market at the end of last year.

Prices in London rose 13.3 percent, while outside the capital and the south-east house prices were 7.4 percent higher.


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