UK Inflation Eases In December

17 January, 2018, 02:03 | Author: Elaine Woods
  • December CPI inflation over 5.2% dashing hopes of RBI rate

The inflation rate in Britain dipped in December for the first time in six months, partly due to a fall in the price of games and toys in the run-up to Christmas, official figures showed Tuesday.

The ticking down of inflation levels will technically mean that pressure should be easing on the squeezed United Kingdom consumer, who has had to struggle against rising prices and falling wages in real terms since the pound dropped over 1000 points, after the Brexit referendum, in 2016.

United Kingdom inflation figures released this morning were within expectations.

Despite December's fall in CPI, everyday prices still rose more rapidly across the United Kingdom as a whole in 2017 than in France, Germany and the wider European Union. Last week, the price of oil rose to $70 a barrel, its highest level since December 2014.

Core inflation, also dropped from 12.20 percent to 12.10 percent giving room to the Central Bank of Nigeria to make a move on interest rates at its next meeting next week, if it holds. ONS said in it's statement.

Aditi Nayar, principal economist at ICRA Ltd, said the divergence in the sequential trend in the CPI and WPI inflation in December was driven by food inflation, and the impact of the higher housing inflation, which was limited to CPI.

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"Such a scenario could represent a real challenge to United Kingdom consumers, as with real GDP growth somewhat muted and no wage hike pressures, the bank could look through rising commodity prices as short-term, creating the risk of stagflation for savers and investors".

Hargreaves Lansdown senior economist Ben Brettell said apart from the "Brexit noise", the UK's economic situation is in keeping with the majority of the developed world, with an ageing demographic and disruptive technologies causing price pressure and limiting the BoE's incentive to hike rates.

As sterling has now recovered two thirds of its value in the aftermath of Brexit, Brittain expects inflation to fall back to two per cent in the coming months.

If inflation does remain stubbornly beyond 2%, Brittain said the Bank of England may be forced to play its trump card of increasing interest rates to help bring it back in line.

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.

Maike Currie, investment director for personal investing at Fidelity International, said: "While price pressures may have eased slightly, this will be cold comfort to cash-strapped consumers who are still suffering a pay cut in real terms as inflation continues to outpace wage growth (including bonuses) at around 2.5%".

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