U.K. Inflation Slows to Least Since 2002 as Oil Prices Drop

By Fergal O’Brien and Svenja O’Donnell

Photographer: Jason Alden/Bloomberg

Driving the fall in transport costs was a 3 pence-per-liter drop in gasoline prices,... Read More

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• Carney Says U.K. Inflation Likely to Fall Below 1%

U.K. inflation fell to its lowest rate in more than a decade in November as tumbling oil prices pushed down transport costs and food prices dropped. Government bond yields declined.
The rate of consumer-price growth declined to 1 percent, the least since 2002, from 1.3 percent in October, the Office for National Statistics said in London today. Economists forecast 1.2 percent, based on the median estimate in a Bloomberg News survey.
Oil prices have fallen about 45 percent this year, pushing down energy costs across the world. Inflation is now on the brink of straying more than a percentage point from the Bank of England’s 2 percent target, which would require Governor Mark Carney to write a letter of explanation to Chancellor of the Exchequer George Osborne.
“While for now we think that outright deflation will be avoided, it is clear
that inflation is set to fall significantly below 1 percent over the coming months,” said Paul Hollingsworth, an economist at Capital Economics Ltd. in London. That’s “likely to act as a significant brake on the pace of monetary tightening over the next couple of years.”
The figures fueled expectations that policy makers are at least a year away from raising interest rates, with the yield on the 30-year gilt falling below 2.5 percent for the first time. The pound was little changed against the dollar at $1.56.

Fuel Prices

Driving the fall in transport costs was a 3 pence-per-liter drop in gasoline prices, almost double the decline in November 2013. Food prices also dropped as a supermarket price war continued -- a 1.7 percent fall on the year was the largest since 2002 -- and there were declines in the price of printers and computer games.
Inflation has been below the BOE’s 2 percent target since January, helping Carney justify keeping the benchmark rate at a record-low 0.5 percent. A drop in the inflation rate below 1 percent would force Carney to write his first public letter of explanation since he became governor in July 2013.
The nine-member Monetary Policy Committee has split in recent months, with two members -- Ian McCafferty and Martin Weale -- pushing to raise the benchmark rate. Carney told reporters in London today “you can expect that we would look through the direct impact of lower oil prices on the U.K.”
Separate data today showed input prices at factories fell 1 percent in November from October, leaving them 8.8 percent lower than a year earlier. Crude-oil prices accounted for the decline, falling 7.6 percent on the month and 25 percent on the year. Factory output prices rose 0.2 percent from October.
The ONS report showed that in November, consumer prices fell 0.3 percent from October. The core inflation rate fell to an annual 1.2 percent from 1.5 percent. Retail-price inflation slowed to 2 percent, the lowest since 2009, from 2.3 percent in October.
In a separate report, the ONS said house prices rose 10.4 percent in October from a year earlier, down from 12.1 percent in September. In London, house-price inflation slowed to 17.2 percent from 18.8 percent.