UK inflation dips for first time since June

January 16, 2018

LONDON (AP) — 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 Office for National Statistics said the annual rate of consumer price inflation fell to 3 percent in December from 3.1 percent the previous month. Another factor behind the decline was that airfares rose by less than they had in the same period the year before. Inflation would have fallen by more had it not been for higher tobacco prices, partly linked to tax increases.

Inflation in Britain spiked sharply higher after the country voted to leave the European Union in June 2016, a decision that saw the pound tank. That stoked inflation by raising the cost of imported goods such as food and oil. Inflation rose so much that the Bank of England decided in November to raise its main interest rate for the first time in a decade even though uncertainties around Brexit have slowed the wider economy.

“Inflation has been running at roughly the same rate since last spring following significant increases, partly due to the weaker pound after the European referendum,” said James Tucker, the statistics agency’s senior statistician. “It remains too early to say whether today’s slight fall is the start of any longer-term reduction in the rate of inflation.”

However, with the impact of the pound’s drop falling out of the annual data, many economists expect a steady decline in inflation this year toward the Bank of England’s target of 2 percent. Also likely to weigh on inflation is the quarter-point interest rate hike to 0.5 percent, which should slightly raise the cost of borrowing to consumers, as well as tepid economic growth. From being the fastest-growing economy among the Group of Seven industrial nations, Britain is now one of the slowest, with much of the growth reliant on a booming European economy.

“Given the continued headwind posed by Brexit uncertainty, I don’t see why the Bank of England would rush to raise rates again this year,” said Ben Brettell, senior economist at stockbrokers Hargreaves Lansdown.

Britain is due to leave the EU in March 2019 and the government is hoping to wrap up a wide-ranging post-Brexit trade deal with the EU by the fall to allow parliaments across the region to be able to give their backing. The British government hopes it will be able to agree on a transition period with the EU by the end of the first quarter this year, which will give businesses the ability to plan ahead.

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