British inflation in December fell to the Bank of England’s target level for the first time in over four years, easing pressure on the Bank to start considering an interest rate hike as the economy recovers.
Consumer prices rose two per cent on the year in December, the slowest increase since November 2009, the Office for National Statistics said. Economists taking part in a Reuters poll had expected inflation to stay at 2.1 per cent, the same rate as November.
Compared with the previous month, the consumer price index in December was up 0.4 per cent, the ONS said.
Annual inflation has exceeded the Bank of England’s 2 per cent target every month since December 2009, eroding the spending power of households and making the fall in living standards a big political issue ahead of next year’s elections.
The BoE said in August it will only think about raising record-low interest rates once unemployment falls to seven per cent, unless inflation expectations threaten to get out of control.
Since then, the unemployment rate has fallen more quickly than the BoE’s forecasts as Britain’s economy recovered more strongly than expected. But policymakers have stressed they are in no rush to raise rates and yesterday’s inflation reading is likely to help their case.
The ONS said the biggest negative contribution to inflation in December was from food, especially fruit and meat, and recreational goods such as computer games.
An ONS official said the collection of data happened too early in the month to capture discounting by retailers in the days immediately before Christmas. Increases in power tariffs by utility companies had only a small overall effect on inflation in December and further impact was likely to be seen ahead, the ONS official said.
Annual inflation has exceeded the Bank of England’s two per cent target every month since December 2009, eroding the spending power of households and making the fall in living standards a big political issue ahead of next year’s elections
An underlying measure of inflation, stripped out increases in energy, food, alcohol and tobacco, rose by 1.7 per cent in December compared with the same month last year, slowing slightly from November.
Data also released by the ONS yesterday showed that factory gate prices rose by one per cent in annual terms, faster than in November but slightly below economists’ predictions of a 1.1 per cent increase.
House prices across Britain rose by 5.4 per cent in the 12 months to November, slowing from 5.5 per cent in October and the first decrease since April last year, the ONS also said yesterday. Increases were concentrated in London, where prices were 11.6 per cent higher than a year earlier, more than double the national average increase.
Excluding the capital and the southeast of England, prices in Britain were 3.1 per cent higher.
The Bank of England this month ended one of Britain’s programmes aimed at stimulating mortgage lending and has stressed it will keep a close eye on the housing market amid fears of a property bubble. The ONS measure of house prices in the 12 months to November compared with increases of 8.4 and 7.5 per cent reported for December by lenders Nationwide and Halifax.