UK inflation slows more than expected as pound effect fades

LONDON • The UK inflation rate fell more than expected in February as the impact of the pound’s post-Brexit referendum slide abated.

Consumer prices rose 2.7% from a year earlier, down from 3% in January, the Office for National Statistics (ONS) said yesterday. Economists expected an increase of 2.8%. The core inflation rate gained 2.4%.

“A small fall in petrol prices alongside food prices rising more slowly than last year helped pull down inflation,” said Phil Gooding, head of CPI (Consumer Price Index) at the ONS. “Many of the early 2017 prices increases due to the previous depreciation of the pound have started to work through the system.”

The slowdown is good news for consumers, who have seen rising prices eat into their spending power over the past year. The Bank of England, which meets this week, expects headline inflation to subside further as the effect of sterling’s 2016 deprecation fade.

The central bank is nevertheless expected to raise interest rates as early as May. Markets are pricing in about three interest-rate hikes over the next three years.

Upward pressure on prices came from clothing and footwear, in particular women’s shoes. Furniture, routine maintenance and household equipment also contributed to annual price gains.

Producer prices rose 2.6% from a year earlier, the least since 2016. Annual input price gains also eased, increasing 3.4%, the lowest since the Brexit referendum in June 2016.

House price growth slowed to 4.9% in January, leaving the UK average at £226,000 (RM1.25 million). — Bloomberg