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The Actuary The magazine of the Institute & Faculty of Actuaries

Inflation falls for first time since June

UK consumer price inflation fell from 3.1% in November back to 3% in December, according to figures released today by the Office for National Statistics (ONS).

Effects of weaker pound less pronounced ©iStock

This was the first decrease recorded for six months, with the fall fuelling hopes that inflation has peaked following a near six-year high.

“It now seems likely we’ll see the rate steadily fall back towards the 2% target over the next year or so,” Hargreaves Lansdown senior economist, Ben Brettell, said.

“Logic has always dictated that once the effect of the weaker pound had percolated into the real economy, it should then start to drop out of the year-on-year calculations 12 months later.”

The ONS said the fall in inflation was largely thanks to lower transport costs, particularly for airfares, but warned that it is too early to say that a peak has been reached.

This comes after the Bank of England (BoE) raised interest rates from their historic low of 0.25% to 0.5% in November last year.

This reversed the decision to cut rates immediately after the UK’s vote to leave the EU, with the Bank previously saying it expected inflation to peak in the final months of 2017.

It predicted that the rate would then fall back to around 2.4% by the end of this year, with Brettell saying he does not expect any further interest rate rises over the next 12 months.

“I see last year’s quarter point move as more of a tacit admission that the cut to 0.25% was unnecessary in the first place, rather than the start of a sustained upwards trend,” he continued.

“Strip out the Brexit noise and the UK’s underlying economic situation doesn’t look materially different from the rest of the developed world.

“Big themes like an ageing demographic and the rise of disruptive technologies are exerting downward pressure on prices.

“I see no reason why UK inflation won’t gradually return to the very low levels which persist among our developed-world peers.”

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