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13 February
2019
 |
British inflation fell (The Total Investment
& Insurance Solutions)
British
inflation fell to a two-year low in January, dipping below the Bank of
England’s target and offering some relief to consumers who have tightened their
belts ahead of Brexit.
Consumer prices rose
at an annual rate of 1.8 percent, down from December’s 2.1 percent, as a new
government cap on household power bills kicked in.
A
Reuters poll of economists had forecast 1.9 percent.
British
consumers have been pressured by inflation caused by the slump in sterling
against the dollar and euro after the Brexit referendum in June 2016.
Inflation peaked at a five-year high of 3.1 percent in
November 2017, when households faced much greater price increases than the
European Union average.
That
difference is now negligible, helping the Bank of England as it holds off on
fresh interest rate hikes pending the outcome of Britain’s Brexit stand-off
with the rest of the EU.
“The
further falling back in inflation facilitates the Bank of England maintaining a
‘wait and see’ approach on interest rates until after the UK leaves the EU,”
Howard Archer, chief economic adviser to the EY ITEM Club consultancy, said.
British
government bond prices rose after the data, pushing 10-year yields down by 2
basis points.
But
Allan Monks, an economist with JP Morgan, said the impact of the power price
cap would be short-lived because tariffs were likely to rise by around 10
percent in April.
“Unlike
when the cap is lowered, energy firms don’t have to automatically raise prices
when the cap is lifted. But we expect they will,” Monks said.
On
Wednesday, npower became the third of Britain’s six major energy providers this
week to say it would raise prices from April.
Last
week the BoE said inflation was likely to fall below 2.0 percent in coming
months before picking up again.
Despite
the fall in inflation since late 2017 and the fastest wage growth in a decade,
businesses have reported a downturn in consumer spending in recent months.
Surveys
show households are worried, with Britain on course for a no-deal departure
from the EU on March 29 unless Prime Minister Theresa May can broker a revised
deal with the EU that would be accepted by her divided party and parliament.
Wednesday’s
figures from the Office for National Statistics suggested less short-term
inflation pressure in the pipeline.
Manufacturers’
raw materials costs were 2.9 percent higher than in January 2018, the slowest
increase since June 2016, the month of the Brexit referendum. Economists polled
by Reuters had expected input prices to rise by 3.8 percent.The Total Investment & Insurance
Solutions
