UK inflation poised to hit BoE target as fuel prices dip

By BLOOMBERG

LONDON • UK inflation fell to its lowest rate in almost two years in December as the cost of filling up a vehicle plunged.

Consumer prices rose 2.1% from a year earlier, the least since January 2017, the Office for National Statistics said yesterday. However, core inflation accelerated to 1.9%, boosted by the price of hotel accommodation.

“Inflation is set for a period below target this year. In the near term, that’s likely to stem from weaker pound oil prices, but further out, it should reflect the impact of news around Brexit. We continue to think there will be a deal and expect pound to rally, though the timing of any lift in the currency has become more uncertain,” according to Dan Hanson of Bloomberg Economics.

Overall inflation rate fell from 2.3% in November and appears on course to drop below the Bank of England’s (BoE) 2% target as early as this month. Motor fuel prices have fallen further in January.

Slowdown has been faster than expected, with the BoE predicting a December rate of 2.4% just two months ago. Inflation averaged 2.3% in the fourth quarter, versus BoE forecast of 2.5%.

Auto-fuel prices plunged 4.4% in December, the biggest monthly drop in almost four years. The cost of filling up the tank has fallen almost 6% over the past two months, bringing relief to households seeing a return to real wage growth.

Downward pressures also came from tobacco prices, due to the timing of annual duty increases, and air fares as pre-Christmas hikes were smaller than a year earlier. Upward pressures came from hotel prices and mobile phone charges.