February 18, 2019

United Kingdom inflation falls to 1.8%

14 February 2019, 08:16 | Joann Bryant

Reserve Bank of India head office in Mumbai | Punit Paranjpe AFP Getty Images

Reserve Bank of India head office in Mumbai | Punit Paranjpe  AFP  Getty Images

The latest fall in inflation marks the end of the cost of living outstripping the Bank of England's 2% target for CPI, which is set by the government.

Sterling held firm after the news, at 1.289 USA dollars and 1.138 euros. The inflation was 5.07 per cent in January 2018.

Consumer price changes are important for the economy because inflation is a subtraction in the calculation of real GDP growth, so rising price pressures can depress economic growth and vice versa.

Retail inflation in India dropped further in January on falling food and fuel prices.

'House prices continued to grow, albeit at the lowest United Kingdom annual rate since July 2013 with growth in the North East and London lagging behind Northern Ireland, Wales and the West Midlands'.

The consumer price index fell to 1.8% in January, from 2.1% previously, when economists had looked for a decline to only 1.9%. Diesel also fell by 2.4p to 129.5p. City economists think so.

"In the current climate of heightened uncertainty in regards to the Brexit process, businesses will benefit from a supportive monetary policy".

India's consumer prices rose at a milder pace than anticipated in January and remained below the Reserve Bank of India's target for a sixth straight month, strengthening views it could again cut the key interest rate at its next policy review in April.

'That said, sadly it is still the case that many savings accounts are paying less than inflation - particularly older accounts and those held with the high street banks.

"Assuming some kind of smooth Brexit, it should be able to gently nudge rates up over the next couple of years".

"But with inflation fairly well behaved, the Bank will also have the ability to support the economy by cutting interest rates if there were a no deal Brexit", he added.

Mr Brettell added that now the "inflation genie is still firmly in the bottle, despite unemployment at multi-decade lows", which has made the Bank's job easier over the past few years.

A fall below the 2% threshold for inflation readings would highlight less room to maneuver for the BOE with regards to rate hikes, so that could see the pound be pressured a little if the actual reading misses to the downside.

The CPI, including owner-occupiers' housing costs (CPIH) - the ONS's preferred measure of inflation - was 1.8% in January, down from 2% in December.

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