* UK inflation falls to its lowest since Nov 2009
* Factory gate prices rise slightly faster than expected
* Sterling falls after data, gilts gain
* UK's Cameron says figures show economic plan is working
By Andy Bruce and David Milliken
LONDON, Feb 18 British inflation fell below the
Bank of England's target for the first time in over four years
last month, reinforcing the bank's message that there is no rush
to raise interest rates.
Consumer prices rose 1.9 percent on the year in January,
slowing from December's rate of 2.0 percent, making it the
smallest increase since November 2009, the Office for National
Economists polled by Reuters had expected it to stay at 2.0
percent, although the lower rate of inflation fitted with the
BoE's latest forecasts showing it would dip to around 1.7
percent by March.
"With sterling remaining strong, pushing down import costs,
energy and commodity prices remaining well behaved and wage
pressures limited, inflation is likely to remain soft for
several months," said ING economist James Knightley.
"We do expect to see an uptick later this year with a
strengthening labour market likely prompting a gradual rise in
wages ... but it is not going to be troubling for the BoE."
Before December last year, annual inflation exceeded the
Bank of England's 2 percent target every month since December
2009, eroding the spending power of households and making the
fall in living standards a big political issue ahead of next
In a rare comment after inflation figures, Prime Minister
David Cameron said the decline showed the government's long-term
economic plan was working.
Last Wednesday the BoE said it was in no rush to hike rates
and that it would look for a range of measures to show less
slack in Britain's labour market before it tightens policy.
Tuesday's figures are likely to reinforce that position,
despite house price figures released alongside the consumer
inflation numbers that showed the annual rate of house price
growth had returned to October's three-year high.
The central bank has said it will use measures other than
raising rates to tame house prices if they threaten to get out
Sterling fell back after the data while gilts extended
CHEAPER CLOTHES, FURNITURE
The ONS said the biggest negative contribution to the annual
consumer price inflation rate in January was from clothing,
spirits, furniture and household goods and DVDs.
An underlying measure of inflation, which strips out
increases in energy, food, alcohol and tobacco, rose by 1.6
percent in January compared with the same month last year, its
smallest increase since June 2009.
Compared with the previous month, the consumer price index
in January fell 0.6 percent, reflecting seasonal discounting.
Data also released by the ONS on Tuesday showed factory gate
prices rose by 0.9 percent in annual terms, slightly faster
than economists' predictions of a 0.7 percent increase.
Core producer prices rose 1.2 percent, their biggest annual
increase since May 2012, but this may start to ease as
manufacturers' raw material costs showed their biggest annual
fall since September 2009.
House prices across Britain rose by 5.5 percent in the 12
months to December, up from 5.4 percent in November, the ONS
also said on Tuesday.
Increases were concentrated in London, where prices were
12.3 percent higher than a year earlier, the biggest rise August
2010. But excluding the capital, prices in Britain were just 3.3
The Bank of England last month ended one of Britain's
programmes aimed at stimulating mortgage lending and has
stressed it will keep a close eye on the housing market amid
fears of a property bubble.
The ONS measure of house prices in the 12 months to December
compared with increases of 8.8 and 7.3 percent reported for
January by lenders Nationwide and Halifax.
The lenders' figures are based on prices at an earlier stage
of the purchasing process than the ONS numbers, and so tend to
act as a leading indicator.