United Kingdom: Inflation falls below the Bank of England's target in January
February 13, 2019
Consumer prices declined 0.8% in January over the previous month, contrasting December’s 0.2% rise. January’s reading was underpinned by lower prices for clothing and footwear; transport; housing and energy; and furniture, household equipment and maintenance.
Inflation fell from 2.1% in December to 1.8% in January on lower energy prices, below the Bank of England’s (BoE) 2.0% target and marking the lowest reading since January 2017. Core inflation—which excludes food and energy costs—was stable at 1.9%, while annual average inflation dipped from 2.5% in December to 2.4% in January.
Looking ahead, inflation is likely to stay close to the BoE’s target, supported by the fall in oil prices in late 2018. However, solid wage growth will provide upward pressure. The outcome of the Brexit process is a key risk to the inflation outlook, as a no-deal Brexit could lead to a sharp currency depreciation and hence fan price pressures, even in the face of weaker domestic demand.
UK Inflation Forecast
According to the February Inflation Report, the Bank of England sees inflation at 2.0% in Q4 2019 and 2.1% in Q4 2020. FocusEconomics Consensus Forecast panelists expect inflation to average 2.0% in 2019 and 2.0% again in 2020.
Author: Oliver Reynolds, Economist