February 17, 2015 / 11:09 AM / 4 years ago

British inflation hits record low, gives consumers pre-election boost

LONDON (Reuters) - British consumer price inflation eased last month to its lowest level since records began in 1989 and looks set to slow further, lifting voters’ disposable incomes as national elections approach.

Shoppers are reflected in a window as they carry bags along Oxford street during the final weekend of shopping before Christmas in London December 20, 2014. REUTERS/Luke MacGregor

Annual CPI fell to 0.3 percent in January, Tuesday’s official figures showed, as expected in a Reuters poll, from 0.5 percent in December.

The tumble largely reflected a slide in oil prices, which last month hit a near six-year low below $45 a barrel, as well as lower food costs.

Finance minister George Osborne welcomed the figures, published less than three months before the election, as boosting households’ spending power after years of weak wage growth.

Economists expect data on Wednesday to show wages rose 1.8 percent in the three months to December, which would be the fourth straight month of above-inflation increases.

Britain’s Office for National Statistics said CPI models for periods before official estimates were produced showed inflation was last lower in 1960.

Easing inflation could delay a first Bank of England interest rate since the financial crisis, though for that to happen the price falls would have to spread beyond food and energy and show signs of becoming self-reinforcing.


Thursday’s data offered little evidence of that.

Stripping out energy and food, prices rose last month by 1.4 percent, a three-month high.

“There is certainly no sign of the systemic deflation that took a grip on Japan in the 1990s,” said John Hawksworth, chief economist at accountancy firm PwC. “...Domestic demand growth remains relatively buoyant.”

Food and non-alcoholic drink prices, pushed down by a supermarket price war and low commodity prices, fell 2.5 percent, the biggest drop on record.

Last week, BoE Governor Mark Carney said inflation would probably soon fall below zero due to tumbling oil prices, but the Bank also forecast a rebound to its 2 percent inflation target in about two years’ time.

Carney has described the oil price fall as unambiguously positive for the UK economy.

Crude oil prices paid by British manufacturers fell by 20.2 percent in January from December - the sharpest drop since December 2008 and adding to downward pressure on producer prices.

Factory gate prices fell 1.8 percent in the year to January, the biggest decline since records began in 1997.

The ONS also said house prices in Britain rose a yearly 9.8 percent in December, slowing a touch from November and adding to signs that the property market is cooling.

(This story has been refiled to add dropped word ‘rise’ to paragraph 7)

editing by John Stonestreet

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