UK CPI falls close to a two-year low on lower fuel and air travel prices

The UK's Consumer Price Index was 2.1 per cent in December, falling to a 22-month low driven by falls in petrol prices and a year-on-year drop in air fares.

Falling fuel prices contributed a 0.14 percentage points drop in the 12-month rate, as the price of petrol in December last year was the lowest since April 2018.

The downward effects were offset by rises in accommodation services, mobile phone charges, games, toys and food, the Office for National Statistics (ONS) said this morning. 

Prices for overnight hotel stays rose by 0.9 per cent between November and December last year, compared to a fall of three per cent in the same period in 2017. 

ONS head of inflation Mike Hardie 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.

“House price growth was little changed in the year to November with buoyant growth across much of the UK held back by London and the south east.”

Fidelity International investment director for personal investing Tom Stevenson added that CPI is now within touching distance of the Bank of England’s two per cent target.

"With inflation forecast to fall below target next month and for much of 2019, a year of improving purchasing power looks to be the most likely scenario," he added.

“While today’s inflation data will help UK households shake off the January blues, it raises some questions about what this means for the trajectory of interest rates.

"With UK CPI a whisker away from the Bank of England’s target, and last night’s vote providing more questions than answers on Brexit, it would seem that the Bank of England’s Monetary Policy Committee has little incentive to hike rates any time soon.

"The good news is that the pound seems to have taken political turmoil in its stride. Weaker sterling would threaten higher inflation but the prospect of a softer Brexit makes a rebound in the pound seem the likelier option."