U.K. headline inflation eases slightly in December on lower prices in transport

The U.K. headline inflation eased a bit in the month of December, coming in line with market expectations. On a year-on-year basis, the consumer price inflation slowed to 2.1 percent from previous 2.3 percent. Lower prices in the transport sector mainly drove the headline inflation down. The fall of 0.2 percentage point in CPI inflation showed declines in petrol/diesel prices in the month along with smaller rises in airfares compared to December 2017. Both effects symptomatic of the sharp fall in crude oil prices witnessed in the fourth quarter of 2018, noted Lloyds Bank in a research report.

Nevertheless, with the downward impacts to December inflation limited to lower energy prices, underlying price pressures indicated more sign of stickiness. Increased prices in the communication, recreation & culture, and restaurant & hotels categories gave upward influences to inflation last month, pushing ‘core rate to 1.9 percent year-on-year in December from 1.8 percent year-on-year previously.

Against a backdrop of comparatively weak productivity growth and acceleration wage growth, rising unit labor costs should guarantee that underlying inflation remains sticky for some time to come.

As such, in the scenario that current uncertainty regarding the U.K.’s withdrawal from the EU is resolved soon, the longer-term inflation outlook is consistent with the view that modest rises in the bank rate are expected to be required in the forecast horizon, stated Lloyds Bank.

Falls were also seen in the other inflation measures with CPIF moving down to 2 percent year-on-year and RPI easing to 2.7 percent year-on-year. The larger fall in the latter reflected a couple of measurement impacts.

At 12:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at 104.59, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 118.902 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex