United Kingdom inflation dips for first time since June

Jan 17, 2018, 02:04
United Kingdom inflation dips for first time since June

The Office for National Statistics said the annual rate of consumer price inflation fell to 3 percent in December from 3.1 percent the previous month.

Part of the upward pressure on inflation is coming from weak productivity growth, which has plagued the United Kingdom economy since the recession. "At the same time, we hope to see inclusion of petrol and diesel under GST in coming months, which should also help in lowering the pressures of fuel inflation", Shah said. "The dip in inflation for primary food articles in the WPI for December might signal some correction in the CPI inflation for food items in the ongoing month", says Aditi Nayar, principal economist, Icra. The decreasing toy and toy prices in December also contributed to - the inflation rate.

"Inflation remains well above the Bank of England's 2% target and British households are likely to continue to find their finances under pressure if wage growth doesn't pick up and interest rates remain at 0.5%". Fuel and power inflation rose to 9.16 per cent in December, up from 8.82 per cent in November, suggesting that industry is likely to see a compression in margins.

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Commenting on the ONS figures Paul Hollingsworth, senior United Kingdom economist at Capital Economics, said: "The fall-back in CPI inflation from 3.1% in November to 3% in December marks the beginning of what we expect will be a sustained downward trend over the course of this year".

"I see no reason why United Kingdom inflation will not gradually return to the very low levels which persist among our developed world peers", Brettell said.

Is another interest rate rise on the cards?

'Big themes like an ageing demographic and the rise of disruptive technologies are exerting downward pressure on prices, ' he notes. "I'd be somewhat surprised if rates were higher than 0.75% by the end of the year".

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On Monday, BoE rate-setter Silvana Tenreyro said she felt the central bank had "ample time" to look at the impact of its rate hike in November - the first in more than a decade - before moving again.

The report, however, said policy tightening moves may be brought forward to mid-2018 (one 25 bps hike) if FY19 the Budget due carries signs of a sharp fiscal slippages due to a jump in spending or if food prices increases as there are concerns that this year's supply glut in some crops might lead to a shift in production trends next year and a concomitant shortage in supply.

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