UK inflation falls below BoE target for first time since November 2009

British inflation last month fell below the Bank of England's target level for the first time in over four years, further bolstering the BoE's message that there is no rush to raise interest rates. Consumer prices rose 1.9 percent on the year in January, slowing from December's rate of 2.0 percent, making it the smallest increase since November 2009, the Office for National Statistics said.
Before December last year, annual inflation exceeded the Bank of England's 2 percent target every month since December 2009, eroding the spending power of households and making the fall in living standards a big political issue ahead of next year's elections. Last Wednesday 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 hike rates.
Tuesday's inflation reading is likely to reinforce its case, although separate ONS figures also released on Tuesday showed the annual rate of house price growth had returned to October's three-year high, led by double-digit rises in the London area. The ONS said the biggest negative contribution to the annual consumer price inflation rate in January was from recreation and culture, furniture and household goods, and alcoholic beverages and tobacco, which showed their smallest price increase since February 2010.
An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, rose by 1.6 percent in January compared with the same month last year, its smallest increase since June 2009. Compared with the previous month, the consumer price index in January fell 0.6 percent, reflecting seasonal discounting.
Data also released by the ONS on Tuesday showed that factory gate prices rose by 0.9 percent in annual terms, slightly faster than economists' predictions of a 0.7 percent increase. Core producer prices rose 1.2 percent, their biggest annual increase since May 2012, but this may start to ease as manufacturers' raw material costs showed their biggest annual fall since September 2009. House prices across Britain rose by 5.5 percent in the 12 months to December, up from 5.4 percent in November, the ONS also said on Tuesday.