Fall in price of flights, clothes and toys helps inflation drop to 3%

INFLATION has rolled back for the first time since June, helping households to cope with the relentless pressure on their finances.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) eased to 3% in December, down from 3.1% in November when inflation reached its highest level since March 2012.

The outcome was in line with expectations, with some economists believing Britain’s soaring inflation has now peaked following sterling’s collapse since the Brexit vote of June 2016.

Danske Bank economist Conor Lambe said CPI had started 2017 just under the Bank of England’s 2% target, to finish at 3%.

“The increase between the first and last months of the year was mainly a consequence of the sharp depreciation in sterling that followed the Brexit vote.

“For consumers in Northern Ireland and the rest of the UK, the squeeze on spending power throughout 2017 which was

Spending power: Conor Lambe

brought about by this rise in inflation, has probably been the most direct and recognisable impact of the UK’s decision to leave the EU so far.”

But ONS senior statistician James Tucker said it was “too early to say” whether the fall was part of a long-term trend.

The drop was largely caused by air fares, but falling price tags on clothes and toys also pulled costs lower.

The slowdown of inflation takes the pressure off the Bank of England to hike interest rates beyond 0.5% in the coming months. Sterling slipped against the US dollar following the announcement, falling 0.2% to 1.37. Against the euro, the pound was broadly flat at 1.12.

Yael Selfin, chief economist at KPMG UK, said the inflation fall will provide a “small relief ” to households, but oil prices could keep everyday costs higher.

She added: “A rise in oil prices together with the lagged effect of sterling’s earlier falls, which is expected to take some time before being fully passed on to consumers, will continue to provide upward pressure on prices.”

The lion’s share of the downward pressure in December came from air fares, which accounted for a smaller slice of the basket of goods and services in 2017 than the year before.

It means the cost of air travel dragged on overall prices, despite growing by 52.8% month-onmonth in December, compared with a 48.9% rise in 2016.

Food and non-alcoholic drinks also recorded smaller monthly growth of 0.6%, down from 0.8% in December 2016.

There was also a fall in vegetable prices.