UK official annual inflation falls to four year low

Tuesday 25 March 2014 18.37
UK inflation slowed to 1.7% last month
UK inflation slowed to 1.7% last month

British inflation fell to its lowest in more than four years in February, dipping further below the Bank of England's target and easing the pressure on Britain's living standards.

UK consumer prices rose 1.7% on the year in February, as expected, down from January's 1.9% - which had been the first time in over four years that it fell below the Bank's 2% target.

The gap between inflation and average wage growth is now at its narrowest since April 2010, the Office for National Statistics said.

The last time British wages consistently grew faster than inflation was in early 2008, it added.

Before December last year, annual inflation exceeded the central bank's target every month since December 2009, eroding the spending power of households and making falling living standards a key battleground of 2015 elections.

Easing price pressures have underpinned the view the central bank can keep monetary policy loose for a while without the risk of triggering inflation even as the economy recovers rapidly. 

However, the BoE is keenly aware of rising house prices which are increasing at their fastest pace in more than three years.

In February, the BoE said it would look at a broader range of measures of slack in the economy than just the unemployment rate when considering whether to raise borrowing costs, and that it was in no rush to raise interest rates.

The ONS said the biggest downward contribution to the annual consumer price inflation rate in February was transport costs, mainly motor fuel, which showed its biggest drop since September 2009.

Smaller price rises for household gas and electric bills, as well as for clothing and footwear also eased inflation pressures.

An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, kicked up however and rose to 1.7% in February compared with a 1.6% increase in January.

Data also released by the ONS today showed that factory gate prices rose by 0.5% in annual terms in February - less than forecast and the smallest rise since October 2009.

House prices across Britain rose by 6.8% in the 12 months to January, up from 5.5% in December, the ONS also said today. That was the biggest increase since August 2010.

Increases were concentrated in London, where prices rose by 13.2% on an annual basis.

Concerns about the rapid rise of the housing market prompted the Bank of England to announce in November that it would scrap the part of its Funding-for-Lending Scheme that supports mortgage lending.

But finance minister George Osborne said in his annual budget last week that the government would extend the equity loan portion of the government's Help to Buy mortgage guarantee programme for four years longer than planned to 2020.