United Kingdom inflation falls to two-year low, offering households help before Brexit

Andrew Cummings
February 14, 2019

The data released by the Central Statistics Office further said the inflation in the "fuel and light" category also fell to 2.2 per cent in January this year from 4.54 per cent in December 2018.

Before last month, the last time a one-year fixed-rate matched inflation was November 2016, and back then the CPI was only 1.2 per cent.

Mike Hardie, head of inflation at the ONS, said: 'The fall in inflation is due mainly to cheaper gas, electricity and petrol, partly offset by rising ferry ticket prices and air fares falling more slowly than this time a year ago. At 2.05 per cent, inflation in January was lower than economists' expectations.

"The implication is that second round effects are much more muted, and shocks to food and fuel prices do not propagate as strongly into core inflation", JPMorgan economists Sajjid Chinoy and Toshi Jain wrote in a recent note.

Sterling lost slight gains against the dollar following the CPI data, remaining flat for the day at $1.2891.

The main driver for inflation was the new energy price cap on standard variable tariffs recently introduced by energy watchdog Ofgem.

'House prices continued to grow, albeit at the lowest United Kingdom annual rate since July 2013 with growth in the North East and London lagging behind Northern Ireland, Wales and the West Midlands'.

This is down from 2.1% the previous month. Diesel also fell by 2.4p to 129.5p.

The Consumer Food Price Index declined to 2.17% in January.

"The further falling back in inflation facilitates the Bank of England maintaining a "wait and see" approach on interest rates until after the United Kingdom leaves the EU", Howard Archer, chief economic adviser to the EY ITEM Club consultancy, said.

It still maintained the line that interest rates will need to rise "at a gradual pace and to a limited extent" over the coming years in order to ward off mounting price pressures, but the lower GDP and inflation forecasts led markets to believe the BoE thinks rates will rise by less than was previously the case.

However, he added: "If there is a no-deal United Kingdom exit from the European Union at the end of March, the inflation outlook will be clouded by a number of factors - most notably what happens to sterling, how well the economy holds up and what tariffs come into effect".

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