UK inflation falls to Bank of England target, underlying pressure weak

Credit: REUTERS/SIMON DAWSON

Britain's inflation rate cooled in May and cost pressures in factories fell to a three-year low, according to data that might reassure the Bank of England that there is no urgency to raise interest rates.

LONDON, Jan 15 (Reuters) - British inflation sank unexpectedly to a more than three-year low in December as hotels slashed prices, according to figures that are likely to fuel expectations that the Bank of England will cut interest rates.

Consumer prices rose at an annual rate of 1.3% compared with 1.5% in November, marking the smallest increase since November 2016, the Office for National Statistics said.

That was below all forecasts in a Reuters poll of economists that had pointed to another 1.5% increase.

Since the turn of the year, BoE officials have voiced concerns about the strength of Britain's economy, raising expectations in financial markets that they could vote to cut interest rates as soon as this month.

Although Wednesday's data showed inflation for the fourth quarter as a whole matched the BoE's 1.4% forecast it made in November, the surprise drop in price pressures last month will likely add to expectations of stimulus.

"Inflation eased in December as prices for hotel stays dropped. Women's clothing prices also fell with more items being discounted," ONS statistician Mike Hardie said.

The ONS said 33% of hotels surveyed in December reported falling prices, compared with only 10% reporting an increase.

A measure of core inflation, which excludes energy, fuel, alcohol and tobacco, also fell to its lowest since November 2016 at 1.4%, down from 1.7% in November. (Reporting by Andy Bruce and Paul Sandle) ((uk.economics@reuters.com, +44 20 7542 7748)) Keywords: BRITAIN ECONOMY/INFLATION

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