Plus   Neg

U.K. Inflation Falls Below 2% Target For First Time Since 2009


U.K. consumer price inflation fell below the 2 percent target for the first time since November 2009, giving room for the Bank of England to leave its record low interest rates unchanged for some more time and avoid any rate hike that risks economic recovery.

Factory-gate inflation also moderated in January, reflecting decreases in petroleum and pharmaceutical products.

Consumer price inflation eased to 1.9 percent in January from 2 percent in December, figures from the Office for National Statistics showed Tuesday. The rate was expected to remain at 2 percent.

On a monthly basis, consumer prices fell for the first time since June 2013. Prices were down 0.6 percent, reversing the 0.4 percent rise in December.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, moderated to 1.6 percent in January from 1.7 percent in December.

In its quarterly Inflation Report, released last week, the BoE estimated inflation to stay near 2 percent target over the coming three years. The central bank suggested that the interest rate is set to rise only in the second quarter of 2015.

Given the amount of slack in the economy and consumers' limited purchasing power, IHS Global Insight's Chief U.K. economist, Howard Archer said he doubts that underlying price pressures will pick up markedly.

Inflation could fall to as low as 1 percent later this year and will remain subdued thereafter, said Samuel Tombs, a U.K. economist at Capital Economics said. This should enable real pay to rise for the first year since 2007 and allow the central bank to keep interest rates on hold until late 2015.

Prices of recreation and culture, furniture and household equipments and alcoholic beverages contributed to the overall slowdown in inflation in January.

Another report on producer prices today revealed that output price inflation eased in January but at a slightly slower-than-expected pace. Factory-gate prices rose 0.9 percent year-on-year, following 1 percent increase in December. Economists had expected an inflation figure of 0.7 percent.

On a monthly basis, output prices climbed 0.3 percent from December, when they were flat. Economists had expected the flat trend to continue in January.

Input prices fell for a third straight month in a row in January, down 3.1 percent year-on-year. That was worse than the 2.9 percent decline economists had forecast. In December, prices dropped 1 percent.

On a monthly basis, prices decreased 0.9 percent in January, after a 0.2 percent gain in December. Economists had expected a 0.4 percent shrinkage.

Indicating overheating in the property market, house prices advanced 5.5 percent in December from a year earlier, ONS said in a separate communique today. This followed a 5.4 percent gain in November.

In a BBC interview this week, BoE Governor Mark Carney said he is conscious of boom and bust in the U.K. housing market. The bank will state clearly and publicly if it became uncomfortable with the Help to Buy scheme, he added.

For comments and feedback contact: editorial@rttnews.com

Business News

Follow RTT