UK inflation at its lowest in two years

UK CPI inflation rate drops to 2.1 per cent helped by falling oil prices being reflected at petrol pumps, house prices increase outside of London and the south east. Results indicate Bank of England unlikely to raise interest rates.

David Sapsted

16 January 2019

The UK's inflation rate last month fell to its lowest for almost two years and stood only fractionally above the Bank of England's target of two per cent, official figures showed on Wednesday.

Ease in inflation linked to fall in oil and petrol price

A marked drop in the price of oil was the main contributor to a fall that saw the Consumer Price Index (CPI) drop to 2.1 per cent, from 2.3 per cent in November. December's figure was the lowest since January 2017, according to data from the Office for National Statistics (ONS).Mike Hardie, head of inflation at the ONS, said, "Inflation eased mainly due to a big fall in petrol, with oil prices tumbling in recent months."Air fares also helped push down the rate with seasonal prices rising less than they did last year. These were partially offset by small rises in hotel prices and mobile phone charges.

House prices increase outside of London and the South East

"House price growth was little changed in the year to November, with buoyant growth across much of the UK held back by London and the South East".The Retail Prices Index measure of inflation stood at 2.7 per cent last month, down from 3.2 per cent in November, while the CPIH, which includes owner-occupier housing costs, came in at two per cent, down from 2.2 per cent the previous month.Ruth Gregory, senior UK economist at Capital Economics, said the data suggested there would be little appetite for an interest rate hike at the Bank of England.

Inflation rate indicates little appetite for raise in interest rate from Bank of England

“With inflation within a whisker off its two per cent target, the Monetary Policy Committee (MPC) will probably feel comfortable in waiting until Brexit uncertainty is resolved before moving again.”Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he expected the CPI to fall just below the target figure in January and hover around 1.8 per cent for the rest of the year."Modestly below-target inflation, however, won't stop the MPC from hiking Bank rate, as the committee believes that interest rates still are well below neutral levels and that no spare capacity exists," he added.Mr Tombs said that a 'soft' Brexit could help the UK economy pick up and would give the MPC "the green light to raise Bank rate again, probably as soon as May".Stephen Clarke, senior economics analyst at the Resolution Foundation, said the easing of inflation provides a "welcome relief to households amid wider economic uncertainty", adding, "Assuming very damaging Brexit outcomes are avoided, a tight labour market continuing to put upward pressure on pay should mean 2019 is set to be a better - if not great - year for wages."Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectorySubscribe to Relocate Extra, our monthly newsletter, to get all of the international assignments and global mobility news.

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