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UK Inflation Rate Slips Under Bank of England’s 2% Target

The U.K.’s annual rate of inflation fell below the Bank of England’s target for the first time in two years during January as energy prices tumbled.

The Office for National Statistics on Wednesday said consumer prices were 1.8% higher than a year earlier, a drop from 2.1% in December, and the first time the inflation rate had slipped below the BOE’s 2% target since January 2017. Excluding volatile items such as energy and food, the core rate of inflation was unchanged at 1.9%.

The decline in the inflation rate is unlikely to alter the BOE’s plans to raise its key interest rate very slightly over the coming years, assuming there is a smooth transition to a new trading relationship with the European Union when the U.K. is scheduled to leave the bloc next month.

The BOE last week said it expected inflation to fall below its target in the early months of 2019 on lower world energy prices, but pick up toward the end of the year and be above its target in 2020. Although the British economy has slowed in the face of uncertainty about the way in which Brexit will take place, the jobless rate has continue to fall, pushing up wages and therefore the costs faced by businesses.

The ONS said U.K. house prices were 2.5% higher in December 2018 than a year earlier, the lowest annual rate of increase since July 2013.
Source: Dow Jones

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