British annual inflation hit a two-year low point in January, undershooting the Bank of England’s 2.0 per cent target on falling oil and other energy costs, official data showed on Wednesday.
The Consumer Prices Index 12-month rate hit 1.8% last month, down from 2.1% in December, the Office for National Statistics (ONS) said in a statement.
That marked the first time since January 2017 that the rate has fallen underneath the Bank of England’s official 2.0-per cent target level used to help set British interest rates.
Analysts had forecast a drop to 1.9%. Inflation was pulled lower by a decline in electricity, gas and motor fuel prices between December and January.
“The fall in inflation is due mainly to cheaper gas, electricity and petrol, partly offset by rising ferry ticket prices and air fares falling more slowly than this time last year,” said ONS inflation head Mike Hardie.
Some economists think it is unlikely that inflation will fall much more. For instance, Ofgem's energy price cap may not suppress inflation for long, as the cap is due to rise in April.
Andrew Wishart, UK economist at Capital Economics, said: The fall in CPI inflation below the Bank of England's 2% target for the first time in two years in January provides a further boost to households' real spending power, but we doubt inflation will fall any further.
Much could depend on the course of the Brexit negotiations, according to Howard Archer, chief economic advisor to the EY Item Club. Domestic inflationary pressures are expected to pick-up only modestly over the coming months amid likely limited UK growth, said Mr Archer.
Assuming there is a Brexit deal, he said inflation could stay below 2% this year - and even dip to 1.6%. If there is not a deal, Mr Archer said the picture would be different and the Bank of England could cut interest rates as economic activity would likely take a significant hit.