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Inflation falls back for first time since June as Brexit hit wanes

17 January 2018, 02:06 | Maryann Sutton

The inflation rate fell to 3 per cent in December from 3.1 per cent in November

The inflation rate fell to 3 per cent in December from 3.1 per cent in November

But logic has always dictated that once the effect of the weaker pound percolated into the real economy, it should then start to drop out of the year-on-year calculations 12 months later.

The Bank of England 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.

WisdomTree Europe director of research Viktor Nossek said: "As expected, CPI inflation has fallen back from its multi-year high to end 2017 at 3%". Outstanding price rises last month included fashion and footwear (4.3%) and transport (0.6%).

Despite the modest fall, inflation is still way beyond the Bank of England's mandated target of two per cent, noted Matthew Brittain, investment analyst at wealth manager Sanlam UK. But the statistical office says it is too early to say whether this is the beginning of a longer-term decline in inflation.

Paul Hollingsworth, senior United Kingdom economist at Capital Economics, said: "As a result, the MPC is unlikely to feel pressured into raising rates again very soon".

"Big themes like an ageing demographic and the rise of disruptive technologies are exerting downward pressure on prices", he said.

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He said: "Admittedly, the rise in Brent oil prices to a three-year high of 70 USA dollars a barrel in mid-January increases the risk that inflation could be sticky in the near term".

Is another interest rate rise on the cards?

Brettell said if you strip out the Brexit noise, the UK's underlying economic situation doesn't look materially different from the rest of the developed world. Given the continued headwind posed by Brexit uncertainty, I do not see why the BoE would rush to raise rates again this year.

The drop of 0.53 percent points recorded in December makes it the eleventh consecutive slowdown in the inflation rate.

The evidence for slow of the United Kingdom consumer spending raises after the official data in 2017 showed the poorest household spending growth in five years against the backdrop of high inflation and Brexit's concerns over business investment.

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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