United Kingdom inflation rate slips to 3%, first decline in six months

United Kingdom inflation as measured by the consumer price index (CPI) eased back in December to 3%, from 3.1% in November.

In January past year, inflation stood at just 1.8 per cent, but it had risen to 3.1 per cent by November 2017. The report states that as is usually the case in December, air fares rose sharply, but at a lower rate than in the previous year. "It now seems likely we'll see the rate steadily fall back towards the 2% target over the next year or so, though the ONS reckons it's too early to say the peak has been reached". On the other hand, inflation in manufactured products remained at the same level as before (2.6 per cent).

It was the first fall in the rate since June.

Inflation has rolled back from a near six-year high, as falling price tags on clothes and toys helped ease the pressure on household finances last month.

However, pressure in the pipeline grew as factory gate prices rose, confounding predictions of a fall.

On the prospect of the Bank of England's monetary policy committee (MPC) raising interest rates again following November's rise to combat inflation, he added: "The MPC is unlikely to feel pressured into raising rates again very soon".

"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.

British inflation eased off its post-Brexit vote high in December, official data showed on Tuesday, suggesting the financial squeeze on many households could be about to get a little bit easier.

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Costs lifted by 2.7 per cent month-on-month in December, compared with a 0.2% rise for the same month in 2016. "The divergence in the sequential trend in CPI and in December was driven by food inflation and the impact of the higher housing inflation, limited to the CPI". While retailers will continue to do their best to absorb cost increases for their customers, the challenges to the industry remain stark with more inflationary pressures in the pipeline, ' she said.

Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond fund, says: 'While the overall profile for United Kingdom inflation looks better for 2018 than it did for 2017, there are some material tail risks that could result in sterling weakness, which would very easily re-ignite inflation concerns'.

Smith & Williamson global inflation-linked bond fund manager Thomas Wells highlighted the significance of the pound's gains in countering soaring oil prices.

  • David Armstrong