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Inflation drops to 20-month low as petrol prices fall

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19/12/2018
UK consumers have been given a festive boost after inflation fell to 2.3% in November, the lowest rate since March 2017.

Figures from the Office for National Statistics (ONS) show the Consumer Price Index measure of inflation fell last month from 2.4% in October, thanks largely to falling petrol prices.

Downward pressures were offset by higher tobacco prices and price rises in accommodation services and passenger sea transport.

UK wage growth rose to 3.3% for the three months to October meaning wages continue to outstrip inflation.

Mike Jakeman, senior economist at PwC, said: “Inflation returning towards the Bank of England’s 2% target is good news for workers, who are receiving the dual benefit of accelerating wages and slowing inflation, pushing up their income growth in real terms.

“It also suggests that the Bank’s current monetary policy is suitable for now, with the central bank highly likely to leave interest rates unchanged until there is more clarity on the circumstances through which Brexit will be resolved. We continue to expect inflation to slow to the Bank’s 2% target in the coming months.”

However, some experts believe falling inflation may only be temporary.

Alistair Wilson, head of retail platform strategy at Zurich, said: “Renewed pressure on the pound caused by Brexit uncertainty is likely to keep inflation above the Bank of England’s target, limiting the upside potential for any real increase in income and household spending.”

And Thomas Wells, bond fund manager at Smith & Williamson, said: “The UK inflation outlook remains very difficult to call as so much depends on whether or not we get a trade deal with the EU.
If we don’t get a deal, we would expect a slump in the pound followed by a downturn in growth – in other words, a stagflationary environment.”

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