U.K. Inflation Rate Falls to 20-Month Low as Oil Prices Tumble

Consumer-price growth slowed to 2.3 percent from 2.4 percent in October.

Brian Swint

19 Dec 2018, 08:53 PM IST

U.K. Inflation Rate Falls to 20-Month Low as Oil Prices Tumble

Petrol and diesel fuel pump nozzles are seen at a Royal Dutch Shell Plc gas station in south London, U.K. (Photographer: Simon Dawson/Bloomberg)

(Bloomberg) -- U.K. inflation eased to a 20-month low in November as a sharp fall in oil prices brought down the cost of filling up a vehicle.

Consumer-price growth slowed to 2.3 percent from 2.4 percent in October, as forecast in a Bloomberg survey. Core inflation slipped to 1.8 percent from 1.9 percent.

Key Insights

Office for National Statistics says downward pressure came from the cost of auto fuel, which fell 1.1 percent compared with a 1.6 percent increase in November last year. Other drivers include food, computer games and admissions for live music.
Upward pressures came from clothing prices, hotels and restaurants. Tobacco prices made the largest upward contribution, boosted by Budget tax increases.
Inflation so far this quarter has undershot forecasts made by the Bank of England last month. The BOE had forecast a CPI rate of 2.5 percent for both October and November.
Brexit crisis has seen traders pare bets on a rate rise next year, despite evidence of growing inflationary pressure in the labor market where households are enjoying the return of real wage growth.
BOE is expected to keep its benchmark rate at 0.75 percent this week and traders are ruling out the possibility of a hike before Britain leaves the European Union on March 29.

What Our Economists Say...

“A move below the central bank’s 2 percent target looks almost certain next year, if there’s a Brexit deal. Lower oil prices, stronger sterling and a slow recovery in domestic inflation could see the target breached as early as 1Q and remain below 2 percent for most of 2019. But it’s still unlikely to prevent the central bank from raising interest rates twice.”
-- Dan Hanson, Bloomberg Economics

Get More

Producer input prices fell 2.3 percent from October, driven down by a 11.8 percent drop in the price of crude oil. The decline saw the annual rate of increase drop to 5.6 percent from 10.3 percent.
Output prices rose 0.2 percent, taking the year-on-year rate to 3.1 percent.
Fears that Britain could crash out of the EU without a deal are taking a toll on the U.K. housing market, with annual house-price growth slowing to 2.7 percent in October, the lowest since July 2013. The worst-performing region was London, where prices fell 1.7 percent.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson