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UK inflation cools for first time since June as Brexit hit wanes

Combination of high inflation and slow wage growth is likely to mean that Britain again grows more weakly than other European economies this year

Gulf News

London: 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.

Consumer price inflation fell for the first time since June, slipping to annual rate of 3.0 per cent, as expected by economists, from November’s nearly six-year high of 3.1 per cent.

Inflation jumped in Britain after voters decided in June 2016 to leave the European Union, a move that hammered the value of the pound and pushed up the cost of imports.

In the Eurozone, inflation was just 1.4 per cent in December, less than half the rate in Britain.

The combination of high inflation and slow wage growth — as well as uncertainty about the terms on which Britain will leave the EU in 2019 — is likely to mean that Britain again grows more weakly than other European economies this year.

Consumer price growth looks set to wane as the peak impact from sterling’s sharp fall in mid-2016 drops out of the data.

But the Office for National Statistics said it could not yet declare that inflation was definitely on the slide.

“It remains too early to say whether today’s slight fall is the start of any longer-term reduction in the rate of inflation,” James Tucker, an ONS statistician, said.

Tuesday’s official data showed growth in food prices slowed in December while airline fares rose less strongly than a year earlier, also pushing down on the overall inflation rate.

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

Little pressure on BOE

Lucy O’Carroll, chief economist with Aberdeen Standard Investments, said inflation might stay close to 3 per cent for the next few months before drifting down later in the year as the impact of the pound’s decline falls out of the numbers.

“This slowing in inflation takes the pressure off the Bank of England to raise rates in the short term,” she said.

Sterling fell slightly against the US dollar while government bond prices were little changed by the data.

The BoE has said it expects inflation peaked in late 2017 before falling slowly over the next three years to just above its 2 per cent target. Many private economists think the fall could be faster, possibly to 2 per cent this year.

The BoE is widely expected to keep interest rates unchanged at 0.5 per cent next month as it waits for signs that wages are rising more quickly.

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 alternative measure of retail price inflation, which is used to calculate payments on government bonds and many commercial contracts, rose to a six-year high of 4.1 per cent — pushed up by higher mortgage bills after the BoE rate hike.

Among manufacturers, the cost of raw materials — many of them imported — was 4.9 per cent higher than in December 2016, down from 7.3 per cent in November and the weakest increase since July 2016.

Economists polled by Reuters had expected input prices to rise by 5.4 per cent.

But manufacturers increased the prices they charged by 3.3 per cent compared with a rise of 3.1 per cent in November, stronger than all forecasts in the Reuters poll.