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UK inflation drops to surprise 12-year low

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Written by: Dan Jones
16/12/2014
UK CPI inflation fell further than expected in November to its lowest level since 2002, according to the Office for National Statistics (ONS).

The ONS said today that CPI inflation fell from 1.3 per cent in October to 1 per cent in November, a 12-year low. Economists had expected a drop to 1.2 per cent.

The statistics agency hinted that the falling oil price is in part responsible for the drop: the ONS said drops in transport costs, notably for motor fuels and air transport – as well as a fall in second-hand car costs – were a significant contributor to the monthly slowdown.

Drops in the prices of recreational and cultural goods were also a factor, the ONS added.

CPIH, a measure which includes housing costs but which is not a national statistic, also dropped from 1.3 per cent to 1 per cent on the month.

Capital Economics said it is now likely inflation will fall “significantly below” 1 per cent in the coming months, as lower fuel and energy costs put pressure on the headline figure.

“The recent 25 per cent fall in oil prices to below $60 per barrel (pb) from their average level of $79 in November should cause petrol’s contribution to CPI inflation to decline by another 0.3ppts,” said UK economist Paul Hollingsworth.

“What’s more, the freezing of energy bills this winter should mean that energy prices’ contribution to inflation falls from 0.3ppts to zero in December.”

Maike Currie, associate investment director at Fidelity Personal Investing, said: “[These figures are] good news for British workers, who after five years of tepid wage growth are finally seeing their earnings beat the rate of inflation, although only marginally.

“Could 2015 be the year the cost of living finally becomes bearable and sustainable for those who are working hard to put pounds into their pockets? Either way, low inflation means interest rates are likely to stay lower for longer and savers will need their investments to work even harder to generate a decent level of income.”

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