UK inflation hits 20-month low

But commentators still bracing for Brexit-related squeeze on household spending

Merry Christmas for Morrisons as high street suffers

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Inflation in the UK has hit a 20-month low thanks to a slight drop in petrol and clothing prices.

The Consumer Prices Index (CPI) came in at 2.3% year-on-year in November, down from 2.4% in October, data from the Office for National Statistics revealed on Wednesday.

The UK CPI figure for the month was the lowest since March 2017.

Falling petrol and clothing prices were the biggest contributors toward lower inflation last month.

Clothing is the only type of UK good that has become significantly cheaper since November 2017, with prices falling 0.8 percentage points year-on-year.

Lower prices for video games and other toys and hobbies also helped ease inflationary pressures last month.

However, this was offset slightly by rising prices in tobacco, housing and household services and transportation.

Separate figures from the ONS revealed the average price for a house in the UK is climbing at its slowest rate since July 2013. Prices rose 2.7% in the year to October and were down from 3% in September.

Little to be jolly about

While inflation edged closer to the Bank of England’s 2% target, commentators were quick to point out that with Brexit uncertainty still weighing on the pound the drop in prices provides little consolation for British households.

“Lower inflation might bring some temporary Christmas cheer to the High Street but there is little to be jolly about,” said Alistair Wilson head of retail platform strategy at Zurich.

“Renewed pressure on the pound caused by Brexit uncertainty is likely to keep inflation above the Bank of England’s target, limiting the upside potential for any real increase in income and household spending.”

All comes down to Brexit deal

The pound has been rattled over the past few weeks as prime minister May’s Brexit strategy faced intense backlash from all sides of the political spectrum and was left fighting for her position as head of the government after 48 members in her own Conservative party said they had no confidence in her leadership.

On a one-month view it has fallen 1.6% to $1.26 against the US dollar, a 20-month low for the currency.

The outlook for UK inflation next year depends heavily on whether Theresa May can negotiate a trade deal with the EU and even then some domestic sectors look like they are in trouble, Smith & Williamson Global Inflation-Linked Bond fund manager Thomas Wells said.

“If we don’t get a deal, we would expect a slump in the pound followed by a downturn in growth – in other words, a stagflationary environment.

“Even if we do get a deal, some sectors, such as retail, are beginning to look mortally wounded.”

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