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UK CPI inflation falls to 0.5%

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  • 13/01/2015
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UK CPI inflation falls to 0.5%
UK consumer prices inflation has fallen to a 15-year low of just 0.5%, driven by plunging oil prices.

UK CPI inflation stood at 0.5% in the year to December, down from 1% in November, according to the Office for National Statistics (ONS). This is the joint-lowest level since records began – last time CPI was at 0.5% was in May 2000.

The ONS said the main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the calculation, as well as the continuing drop in motor fuel prices.

While the rate of inflation fell, there was some upward pressure from prices for alcohol – notably wine and spirits. Prices, overall, usually fall for alcohol in the run up to Christmas. In 2014 the majority of the fall came in November, with the ensuing December fall being smaller than usual, the ONS said.

Meanwhile, the Retail Prices Index grew by 1.6% in the year ending December 2014, down from 2% in November.

Inflation fell to a surprise 12-year low last month, below economists’ expected figure of 1.2%.

This latest move means Bank of England Governor Mark Carney will have to write a letter to the government explaining why inflation is one percentage point off its 2% target. The letter, the first one he has had to write since taking on the governorship of the Bank, is expected to be published in mid-February.

Carney’s predecessor, Mervyn King, wrote several letters explaining why inflation had overshot the Bank’s 2% target.

The last minutes of the Bank of England’s MPC meeting revealed members were split of inflation expectations, with some expecting it to remain below target for longer, and others noting risk factors that could cause it to exceed its 2% target this year.

The latest Inflation Report, issued in November, predicted inflation would fall below 1% in the next six months, but said the risk of inflation remaining below target for longer had been exacerbated by the plummeting oil price.

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