December 19, 2018 / 9:38 AM / a month ago

Cheaper petrol pushes UK inflation to lowest since March 2017

LONDON (Reuters) - Britain’s inflation rate fell to a 20-month low in November, pushed down by cheaper petrol, official data showed on Wednesday, offering some relief to consumers who have reined in their spending ahead of Brexit.

Fuel pumps are seen at a Texaco petrol station in London, Britain, July 26, 2017. REUTERS/Hannah McKay/Files

Consumer prices rose at an annual rate of 2.3 percent, the slowest since March 2017 and down from 2.4 percent in October, after the biggest monthly fall in petrol prices since 2015.

The slowdown was in line with the median forecast in a Reuters poll of economists.

There was less cheerful news for British homeowners, with the average price of a house rising at its slowest rate since July 2013, up 2.7 percent on the year.

Looking at London alone, house prices have fallen for seven of the last eight months — their weakest run since the last recession — as the capital feels the effect of higher purchase taxes and investor uncertainty ahead of Brexit.

Financial markets were little moved by the data.

Samuel Tombs, an economist with Pantheon Macroeconomics, said he expected inflation to fall below the Bank of England’s 2 percent target from early 2019 and to average 1.8 percent over the course of the year.

But the BoE was still likely to keep on raising interest rates gradually as it worries about inflation pressure with the unemployment rate at its lowest since the 1970s.

The inflation rate also showed downward pressure from a drop in volatile video games prices but major upward pressure from higher tobacco taxes.

“Lower inflation might bring some temporary Christmas cheer, but there is little to be jolly about,” said Alistair Wilson, head of retail strategy at Zurich Insurance Group.

He said a recent fall in sterling due to fresh Brexit worries was likely to limit further declines in inflation.

British consumers have been pressured by inflation since the Brexit referendum in June 2016 triggered a slump in sterling of more than 10 percent against the dollar and euro. Inflation peaked at a five-year high of 3.1 percent in November 2017.

But despite the fall in inflation since then, and wages growing at their fastest in a decade, businesses have reported a downturn in consumer spending in recent months, and surveys show households are worried about the outlook for 2019.

The British Chambers of Commerce forecast on Tuesday that economic growth in 2018 and 2019 would be the slowest since the country was last in recession in 2009. Business groups warned on Wednesday about the risk of a no-deal Brexit.

A woman holds a Union Flag shopping bag in London, Britain April 23, 2016. REUTERS/Kevin Coombs/Files

Britain’s politicians have so far been unable to agree on what terms the country should leave the European Union in March next year, and without a consensus the default is that Britain will lose easy access to European markets.

Earlier this month, the BoE sketched out a worst-case Brexit scenario in which sterling would plunge to parity against the U.S. dollar, inflation would exceed 6 percent and the economy contract by 8 percent.

But assuming Britain does leave the EU smoothly, the ONS figures point to a continued easing in short-term consumer prices pressures, with cost increases for manufacturers raw materials halving on the back of falling crude oil prices.

Editing by Jane Merriman

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