Published: Thu, February 14, 2019
Business | By Eloise Houston

Easing core inflation could push RBI to cut rates again

Easing core inflation could push RBI to cut rates again

Annual retail inflation in January rose 2.05 percent, its slowest pace since June 2017, government data showed on Tuesday.

The main driver for inflation was the new energy price cap on standard variable tariffs recently introduced by energy watchdog Ofgem.

The best one-year fixed-rate account, offered by Sharia bank Al Rayan, pays 2.17 per cent, beating inflation by 0.37 percentage points.

"The further falling back in inflation facilitates the Bank of England maintaining a "wait and see" approach on interest rates until after the United Kingdom leaves the EU", Howard Archer, chief economic adviser to the EY ITEM Club consultancy, said.

The CPI including owner-occupiers' housing costs (CPIH) - the ONS's preferred measure of inflation - was 1.8 per cent in January, down from 2 per cent in December.

Inflation was dragged lower as a steep decline in oil prices that took place late a year ago appeared in petrol prices charged at the pumps, while Ofgem's new energy price cap was also seen weighing on the index.

Core consumer inflation, which strips out food and fuel prices, was estimated at about 5.4 percent in January, slightly softer than a downward revised December figure of 5.6 percent, according to an estimate made by two analysts from inflation figures released on Tuesday.

Howard Archer, the chief economic adviser to the EY Item Club, said he expects inflation to stay modestly below 2% for much, if not all, of 2019: "We see inflation averaging 1.8% over 2019 and it could very well get as low as 1.6% during the year".

Economists said it facilitated the Bank's "wait and see" approach on interest rate hikes ahead of Britain's departure from the EU.

Last month, 106 accounts matched or beat the CPI but that has more than doubled to 245 after the drop. The fall in the value of the pound after the Brexit vote had pushed inflation higher, squeezing household disposable income as it pushed up the cost of imported goods.

If the Withdrawal Agreement is not ratified before March 29 then the United Kingdom will automatically leave the European Union and default to doing business with it on World Trade Organization (WTO) terms, which analysts say would be bad for the economy. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency.

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