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UK Inflation Falls to 1.9%

Inflation has fallen to its lowest rate since November 2009, thanks to a strong pound and weak consumer spending due in part to the January sales

Morningstar News Team 18 February, 2014 | 10:13AM

UK consumer price inflation has fallen below the central bank's 2% target for the first time since November 2009.

Inflation eased unexpectedly to 1.9% in January from 2% in December. The rate was expected to remain at 2%. On a monthly basis, consumer prices fell for the first time since June 2013.

Key drivers to the fall were alcohol and cigarettes, furniture and household goods and recreational goods and services.

Prices were down 0.6%, reversing the 0.4% rise in December. Core inflation that excludes energy, food, alcoholic beverages and tobacco, moderated to 1.6% in January from 1.7% in December.

Jeremy Cook, chief economist at the foreign exchange company, World First, said that the UK was in line with global inflation trends, particularly those in developed markets, which have been falling in the past year.

“The combination of slowing consumer expenditure, discount operations by retailers, quiet energy markets and a strong pound have all helped CPI fall to its lowest level in 51 months,” he said.

“The refocusing of the Bank of England’s ‘forward guidance’ plan back to a more holistic look around inflation is significant. It allows the BOE to lean on more data to substantiate its desire to keep rates lower for longer.”

Tomorrow will see the announcement of the latest unemployment numbers, which will provide further indication of the current economic climate.

Cook said that consumers should expect a trend of lower inflation over the course of 2014.

Jason Hollands of stockbroker BestInvest said that tamed inflation will reduce market concerns about interest rate rises this year, with expectations now pushed out till 2015.

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