InvestmentsDec 19 2018

UK inflation set to fall below 2%

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UK inflation set to fall below 2%

The sharp fall in the world oil price offset the continued impact of the decline in the value of sterling to push inflation lower in November, according to data released by the Office for National Statistics (ONS) this morning.

The data showed inflation was 2.3 per cent in November, compared with 2.4 per cent in the previous month.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the price of energy will continue to drag inflation down in 2019.

He expects UK inflation to fall below the Bank of England's 2 per cent target in early 2019.

Thomas Wells, who runs the Smith and Williamson Global Inflation Linked Bond fund, said the fall in inflation offers scant consolation to consumers whose wages have risen at a slower pace than inflation for years.

Mr Wells added that the outlook for inflation in 2019 is reliant on the terms of the UK's exit from the European Union.

He said that were the UK to leave the EU without a deal, then he expects sterling to fall sharply in value, and as a result, for inflation to rise materially.

Kate Smith, head of pensions at Aegon, said: "After remaining unchanged for the previous two months, the drop in the inflation rate to 2.3 per cent, the lowest for the year, means we are edging closer to the Bank of England's target of 2 per cent.

"With inflation falling and the annual nominal wage growth rising to 3.3 per cent for the three months to October, households will begin to feel an ease in the cost of living, a welcomed festive bonus at this time of year where disposable incomes are at their most stretched."