Inflation falls to close to Bank target

INFLATION IS expected to have fallen in December to within a whisker of the Bank of England’s target, due to lower motor fuel and tobacco prices.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal today that the Consumer Prices Index (CPI) of inflation declined to a 23-month low of 2.1 per cent in December.

Inflation came in at 2.3 per cent in November.

This is near the central bank’s two per cent goal and inflation is expected to remain “comfortably below” the target throughout this year, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Prices in January could fall further due to a new cap on energy prices and hover around 1.8 per cent for the rest of the year.

“December’s two-tenths drop in CPI inflation to 2.1 per cent likely will precede a bigger drop, to 1.8 per cent in January, when the introduction of a cap on energy prices alone will subtract 0.2 percentage points from the headline rate.

“Throughout 2019, CPI inflation looks set to oscillate around 1.8 per cent, as a further fall in core goods inflation offsets a modest firming-up of services inflation,” Mr Tombs said.

However, he noted that Bank policymakers will be “more focused on the medium-term outlook for inflation and labour market developments, than on current inflation”.

As a result, he expects the Bank’s Monetary Policy Committee (MPC) to increase the Bank rate by 0.5 per cent to 1.25 per cent this year.

Recent updates from retailers have suggested that dwindling consumer confidence forced both high street and online businesses to discount heavily in the run-up to the festive period.