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Inflation falls to lowest level in nearly two years as oil prices ‘tumble’

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The rate of UK inflation fell to its lowest level in nearly two years in December, helped by weaker fuel prices.

The Consumer Prices Index (CPI) fell to 2.1% in December, as was widely predicted by economists, from 2.3% in November, figures from the Office for National Statistics (ONS) showed.

This is the lowest rate since January 2017 when it was 1.8%

Inflation is now close to the Bank of England’s 2% target, which means policymakers are likely to leave interest rates on hold ahead of Britain’s expected departure from the European Union at the end of March.

Mike Hardie, head of inflation at the ONS, said: “Inflation eased mainly due to a big fall in petrol, with oil prices tumbling in recent months.

“Air fares also helped push down the rate with seasonal prices rising less than they did last year. These were partially offset by small rises in hotel prices and mobile phone charges.”

The Bank of England is currently is forecasting growth of 1.7% for the next two years
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The Bank of England is likely to leave interest rates on hold ahead of Brexit

At the pumps, motorists faced lower fuel costs with petrol down by 6.4p per litre on the month to 121.7p, which was the lowest price since April 2018.

Diesel also fell by 4.6p to 131.9p per litre, the lowest since July 2018.

The fall in inflation will come as a relief to some consumers who have reined in their spending ahead of Brexit.

Separate figures have shown a boost for household spending power as the rate of wage growth is easily outpacing that of price increases.

Inflation had been steadily rising after Britain’s decision to leave the European Union in June 2016 as sterling plunged in value. Inflation peaked at a five-year high of 3.1% in November 2017.

“Although we think that Brexit uncertainty will keep the MPC (Monetary Policy Committee) on hold for the time being, we doubt the Bank will miss out on the global tightening cycle altogether,” Ruth Gregory, senior UK economist at Capital Economics said.

“The MPC has raised rates several times in the past when the prevailing rate of inflation has been below target, because it feared that domestic price pressure would build if it did not act.

“And with external pressures depressing inflation and a recovery in wage growth in train, we suspect it won’t be too long before the MPC reaches the same conclusion again.”

The ONS said most goods and services lifted inflation, apart from clothing and footwear, which had a small downward pull on the rate, with prices falling by 0.9% in the year to December.

The Retail Prices Index (RPI), a separate measure of inflation, was 2.7% last month, down from 3.2% in November.

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