UK inflation rate drops back to 3%
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Loading... - Genevieve Francoise
- 16 Jan 2021
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The UK's inflation rate has fallen for the first time since June, mainly because of the impact of air fares.
The inflation rate dipped to 3% in December, down from November's rate of 3.1% - a six-year high.
The Office for National Statistics (ONS) said that while air fares rose last month, it had a smaller impact than at the same point in 2016.
It added that a drop in the price of toys and games also contributed to December's fall.
The ONS said it was too early to say whether this was the start of a longer-term reduction in the rate of inflation.
The Bank of England has said it thinks inflation peaked at the end of 2017 and will fall back to its target of 2% this year.
In November, the Bank's Monetary Policy Committee (MPC) raised its key interest rate for the first time in more than a decade from 0.25% to 0.5%.
But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The continued weakness of underlying price pressures means that the MPC has little need to rush the next rate hike."
Aberdeen Standard Investments chief economist Lucy O'Carroll agreed there was no need for another quick rise in interest rates, but said: "What matters most for the long-term health of the UK economy is improving its productivity performance.
"If we can do that then the Bank of England may be able to keep rates low for a lot longer. But on recent experience, improving productivity is much easier said than done."
The Retail Prices Index (RPI), a separate measure of inflation, rose to 4.1% last month from 3.9% in November.
The ONS's preferred measure of inflation, CPIH, which includes owner-occupiers' housing costs, fell to 2.7% in December, down from 2.8% the month before.
