UK inflation eases as expected

Consumer price inflation fell back to the Bank of England's two per cent target in December, as expected, driven by lower petrol prices, official data showed yesterday.

The Office for National Statistics said on Tuesday that the consumer price index rose by 0.3 per cent in December for a two per cent annual gain, as expected. That compared with 2.1 per cent in November and was the lowest since June.

Inflation has now slowed for three consecutive months since hitting a peak of 2.5 per cent last September.

The data are likely to boost expectations that price pressures have peaked and leave room for the Bank to trim interest rates from 4.5 per cent later this year.

The CPI fall came mainly as petrol prices and diesel prices fell more than during the same month in the prior year. Airfares also had a downward effect as seasonal price hikes were smaller than a year ago.

However there was a large upward effect from clothing and footwear, where prices fell by less than a year ago.

Core CPI, which excludes volatile items like food, energy, alcohol and tobacco, slowed to 1.3 per cent on the year, its weakest in 10 months.

Retail price index inflation, or RPI, on which most pay deals are based, also slowed more than expected to 2.2 per cent from 2.4 per cent in November, the weakest since October 2002.

That may also reassure Bank policymakers who have said they are monitoring the key new year wage round for any signs that higher inflation last year has pushed up pay deals.

The ONS said for the full year 2005, CPI averaged 2.1 per cent, the highest since records began in 1997.