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)

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

(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.

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

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

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  • 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.

©2018 Bloomberg L.P.