United Kingdom inflation falls to 1.8%

Roman Schwartz
February 14, 2019

The central bank has set an inflation target of 2.8 per cent for the last quarter of the current financial year ending March 31.

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.

As well as the sharp decline in energy prices, Whitehall statisticians said the drop in inflation was also fuelled by lower petrol prices and a decline in the cost of hotel rooms.

While Ben Brettell, senior economist at online brokerage Hargreaves Lansdown, said the inflation data is not going to change the Bank's thinking about the economy or interest rates.

Thirteen out of the 23 industry groups in the manufacturing sector showed positive growth in December compared to the same month the previous year.

Sterling lost slight gains against the dollar following the CPI data, remaining flat for the day at $1.2891. "This reflected the imposition of a new cap on Standard Variable Tariffs, which was 6% below prior average levels".

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"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". Consumer inflation in December was revised downwards to 2.11 per cent from 2.19 per cent, according to the official statement.

The headline reading is expected to decline to +1.9% y/y last month following the +2.1% y/y reading seen in December (as per the above). Diesel also fell by 2.4p to 129.5p.

"We continue to think the Bank of England would press ahead with interest rate hikes if a Brexit deal is reached despite today's slip in inflation below target", Andrew Wishart, from Capital Economics said.

"Waning UK business investment, and potential short-term financing difficulties for many SMEs (small and medium-sized enterprises) in the event of a no-deal Brexit, will require the Bank of England to keep rates low this year, and the latest inflation figures provide the MPC ( the Bank's Monetary Policy Committee) with a mandate to do that".

Inflation pressures have eased in recent months, following falls in food and crude oil prices.

Currency analyst of OFX Hamish Muress said the inflation rate, along with growing retail prices would have caused volatility for the pound "in a time gone by" but said that Brexit was now dictating the agenda.

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