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UK inflation fell to its lowest rate in almost two years in December as the cost of filling up a vehicle plunged.
Consumer prices rose 2.1% from a year earlier, the least since January 2017, the Office for National Statistics said on Wednesday. However, core inflation accelerated to 1.9%, boosted by the price of hotel accommodation.
Key insights
Overall inflation rate fell from 2.3% in November and appears on course to drop below the Bank of England’s (BoE) 2% target as early as this month. Slowdown has been faster than expected, with the BOE predicting a December rate of 2.4% just two months ago. Inflation averaged 2.3 percent in the fourth quarter, versus BOE forecast of 2.5%.
Auto-fuel prices plunged 4.4% in December, the biggest monthly drop in almost four years. Fuel prices have fallen almost 6 percent over the past two months, bringing relief to households seeing a return to real wage growth. Downward pressures also came from tobacco prices, due to the timing of annual duty increases, and air fares as pre-Christmas hikes were smaller than a year earlier.
Upward pressures came from hotel prices and mobile phone charges. There are few immediate implications for monetary policy. Despite cost pressures building in the labour market, almost no one expected the BOE to raise rates before Britain is due to leave the EU on March 29 and Parliament’s emphatic rejection of Prime Minister Theresa May’s Brexit deal Tuesday has thrown the outlook into further confusion.
Brexit fears continue to take a toll on the property market. Annual house-price growth was little changed at 2.8% in November. In London, the worst-performing region, prices fell 0.7%.
