(Bloomberg) -- U.K. inflation held at 3 percent in January as downward pressure from auto fuel and food prices was offset by the cost of attractions such as zoos and gardens.
Consumer prices fell 0.5 percent from December, as they did in January 2017, the Office for National Statistics said on Tuesday. Annual core inflation accelerated to 2.7 percent from 2.5 percent.
The Bank of England expects inflation to subside this year as the effect of sterling’s 2016 deprecation fades. That’s good news for consumers who have seen rising prices eat into their spending power over the past year.
But what matters for rate setters is domestically generated inflation, and officials now judge there is little spare capacity remaining in the economy.
Markets are pricing in about three interest-rate hikes over the next three years, with the first coming as early as May. Even that will leave “excess demand” and inflation above the 2 percent target, policy maker Gertjan Vlieghe said on Monday.
Auto-fuel prices rose less last month than they did a year earlier, and food prices fell for the first time since June. Upward pressures came from the recreation and culture sector, where prices posted their smallest January decline in five years. There was also some pressure from clothing prices as seasonal discounts failed to match those of a year ago.
Producer-price inflation continued to slow in January, with input prices rising 4.7 percent on the year and output prices climbing 2.8 percent. February may see a further slowdown as oil prices decline.
Annual house-price growth picked up to 5.2 percent, driven by Scotland and southwest England. London was again the weakest region, with values rising 2.5 percent.
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