February 18, 2014 / 10:52 AM / 4 years ago

CORRECTED-UK inflation falls below BoE target for first time since Nov 2009

(Corrects region in paragraph 14 to “excluding the capital” from “excluding the capital and the south east of England”)

LONDON, Feb 18 (Reuters) - British inflation last month fell below the Bank of England’s target level for the first time in over four years, further bolstering the BoE’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 Statistics said.

Economists taking part in a Reuters poll had expected inflation to stay at 2.0 percent.

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 year’s elections.

Last Wednesday the BoE said it would look at a broader range of measures of slack in the economy than just the unemployment rate when considering whether to raise borrowing costs, and that it was in no rush to hike rates.

Tuesday’s inflation reading is likely to reinforce its case, although separate ONS figures also released on Tuesday showed the annual rate of house price growth had returned to October’s three-year high, led by double-digit rises in the London area.

The ONS said the biggest negative contribution to the annual consumer price inflation rate in January was from recreation and culture, furniture and household goods, and alcoholic beverages and tobacco, which showed their smallest price increase since February 2010.

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 that 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 percent higher.

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. (Reporting by Andy Bruce and David Milliken)

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