Jennifer Ryan London
UK inflation slipped further below the 2 percent target of the Bank of England (BoE) last month to its lowest rate in more than four years as fuel prices fell.
Consumer prices rose an annual 1.7 percent, the lowest rate since October 2009, compared with 1.9 percent in January, the Office for National Statistics said yesterday. That matched the median estimate in a survey.
The figures give the BoE scope to keep interest rates at a record low to support the recovery. Bank officials meeting earlier this month saw the strength of sterling putting more downward pressure on prices and said further appreciation of the currency was possible as the UK economy recovered.
“Clearly below-target inflation facilitates the BoE keeping interest rates down at 0.5 percent, where we believe they are highly likely to stay through 2014 and during the early months of 2015, despite the economy’s improved growth and markedly reduced unemployment,” Howard Archer, an economist at IHS Global Insight, said.
The pound was trading at $1.6536 to the dollar at 3.15pm in London, 0.21 percent higher than on Monday. The 10-year UK government bond yield was little changed at 2.68 percent.
The inflation figures represent a further easing of the five-and-a-half-year squeeze on real wages, which has pushed living standards to their lowest level in a decade. Average weekly earnings grew 1.4 percent in the three months to January. The 0.3 percentage-point gap between that figure and the consumer inflation rate last month was the narrowest since April 2010.
The statistics office said downward pressure came from petrol prices, which fell 0.8p (14c) a litre compared with a rise of 4p a year earlier. Diesel prices fell 0.8p versus a gain of 3.7p a year earlier.
There was also pressure from gas and electricity prices and clothing and footwear, which rose less last month than a year earlier. Furniture, books and data-processing equipment exerted upward pressure.
Consumer prices rose 0.5 percent last month from the previous month.
The core inflation rate, which excludes alcohol, tobacco, food and energy prices, rose 1.7 percent year on year, compared with a gain of 1.6 percent in January.
Retail price inflation, a measure used in wage negotiations and as a basis for payments on inflation-linked bonds, slowed to 2.7 percent from 2.8 percent, as did the same measure with mortgage-interest costs stripped out.
Last month the pound reached its highest level against the dollar since November 2009 amid growing evidence the economic recovery is gaining momentum.
All nine monetary policy committee members agreed the probability of inflation being above 2.5 percent in 18 to 24 months’ time was less than half, according to minutes of this month’s meeting.
The Office for Budget Responsibility, Britain’s fiscal watchdog, cut its inflation forecast last week to 1.9 percent for the year as a whole and said it expected a return to real income growth this year.
Other data showed price pressures were easing. Input costs for factories fell 0.4 percent last month from the previous month and were down 5.7 percent from a year earlier, the biggest annual drop since September 2009. There was an 11 percent drop in crude oil prices and a 15 percent decline in the price of imported metals.
The prices of goods leaving the factory gate were unchanged in the month and up 0.5 percent from a year earlier.
The statistics office also reported annual house price growth accelerated to 6.8 percent in January, the fastest pace since August 2010.
In London, prices surged 13.2 percent on the year. Excluding London and the south-east of England, house prices were up 3.8 percent. – Bloomberg