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Inflation dropped to 1.8 per cent in January, down from 2.1 per cent the month before, below the Bank of England’s 2 per cent target for the first time in two years, according to the latest official figures.
The headline inflation rate was widely expected to fall back to 1.9 per cent, with economic uncertainty linked to Brexit and global trade tensions keeping prices down.
The Office for National StatisticsConsumer Prices Index showed that the largest downward contribution to the change in the 12-month rate came from electricity, gas and other fuels, although these were partially offset by air fares, which decreased at a lower rate than the year before.
The declining CPI rate is good news for consumers, who have been dealing with higher inflation linked to weaker sterling, but the data reduces the odds on the central bank raising interest rates in the near future.
Alistair Wilson at Zurich said: “Workers may feel wealthier with more cash in their pockets and increased spending power. It will come as a welcome boost for households recovering from squeezed earnings”.
Britain Before Brexit: Greater London
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However, he warned: “This might not last long. As Brexit uncertainty continues to grip the nation it’s hard to be certain which way inflationary pressures will swing. While there is a little breathing space, people should consider how to best shield their money.”
Nancy Curtin, chief investment officer of Close Brothers Asset Management, said: “Despite the UK labour market remaining tight, political and economic uncertainty have held prices down.
“With oil prices low on the back of weaker global demand and air fares tumbling, inflation has kept close to the Bank of England’s target.”
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She added: “The sluggish UK economy is symptomatic of the wider picture. Central banks across the globe have taken their foot off the stimulus pedal and we are now seeing the results.
“With idiosyncratic issues in both the US and Europe slowing growth, Brexit affecting the UK, trade disputes, and a Chinese slowdown, we’re indisputably in a mid-cycle slowdown.
“A global recession seems a far-flung prospect, however, in the UK, Carney must be flexible and data-driven, putting decisive monetary policy on the back burner until greater political and economic clarity emerges.”
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