Interest rate cut ‘likely’ as inflation hits three year low
A CUT in interest rates is looking increasingly likely after inflation fell to a three year low last month.
Figures from the Office for National Statistics (ONS) show the Consumer Price Index (CPI) was 1.3 per cent last month, down from 1.5 per cent in November.
The cost of living slipped to a three-year low due to aggressive discounts on women’s clothing and hotel rooms.
Against a backdrop of sluggish economic growth, experts say it adds to the case for a cut in interest rates which currently stand at 0.75 per cent.
Joe Healey, an analyst at The Share Centre said: “With some Monetary Policy Committee (MPC) members outlining concerns over the recent run of weak data, the drop in inflation will likely add a bit of extra fuel to the fire.”
Earlier this month departing governor of the Bank of England Mark Carney hinted that a cut could be used to stimulate the economy.
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Yesterday, Bank of England rate setter Michael Saunders said signs of weakness in the UK economy should be met with a “relatively prompt and aggressive response” to avoid a bigger slowdown.
Of inflation, Healey added: “However, despite these figures indicating a higher chance of a rate cut, it is likely the deciding factor will be the PMI [economic snapshot] release on 24 January. If no bounce is witnessed there, then the support for a rate cut will grow.”
The Bank of England next meets to discuss monetary policy in several weeks. Both rates and inflation can hit the pound.
Here's more about how inflation affects you, and how it is calculated.
The largest downward pressure on inflation was the hotel sector, as overnight hotel accommodation prices dived 7.5 per cent between November and December, compared with a rise over the same period in 2018.
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Falling clothes prices were the second largest drag on inflation as retailers heavily discounted female fashion ahead of Christmas.
The ONS said 15.2 per cent of items were on sale in December, increasing from 10.9 per cent in the same month a year earlier.
It said that heavy discounting was particularly focused on the high street, with retailers cutting prices on women's jackets, cardigans, formal trousers and skirts.