UK inflation falls back to 3%

Food prices have seen particularly steep rises as inflation has crept up. Picture: Julien Behal/PA W

Food prices have seen particularly steep rises as inflation has crept up. Picture: Julien Behal/PA Wire - Credit: PA

Soaring inflation has fallen back from a near six-year high, signalling the start of an abatement of the sustained squeeze on household finances.

Figures from the Office for National Statistics show the Consumer Prices Index (CPI) measure of inflation fell to 3% in December from a high of 3.1% the previous month.

The outcome was in line with economists' expectations, who widely believe that Britain's soaring inflation has now peaked following sterling's collapse in the wake of the Brexit vote.

Consumers have been searching for a reprieve after taking a double-whammy hit from a Brexit-fuelled jump in the cost of living and paltry wage growth.

ONS senior statistician James Tucker said: 'Inflation has been running at roughly the same rate since last spring following significant increases, partly due to the weaker pound after the European referendum.

'It remains too early to say whether today's slight fall is the start of any longer-term reduction in the rate of inflation.'

The lion's share of the downward pressure came from air fares, which counted for a smaller slice of the basket of goods and services in 2017.

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It means the cost of air travel dragged on overall prices, despite growing by 52.8% month on month in December, compared with a 48.9% rise in 2016.

The cost of clothes also fell on the month by 1% in December, compared with a 0.9% drop for the year before, while games, toys and hobbies were down by 2.7% in contrast to a 1% fall for the same period last year.

Food and non-alcoholic drinks also recorded smaller monthly growth of 0.6%, down from 0.8% in December 2016.

The Bank of England said last month that Brexit-induced inflation was 'close to its peak' as it kept interest rates on hold after the first hike for a decade.

Its nine-strong Monetary Policy Committee (MPC) voted unanimously to leave rates unchanged in December after the milestone rise from 0.25% to 0.5% the month before.

Alan Clarke, Scotiabank's head of European fixed income, said rising oil prices could stop inflation from falling more quickly in the coming months.

He added: 'Admittedly, the recent steady increase in the price of oil has been pushing petrol prices higher, making the likely slowdown in inflation a little less rapid.

'In short, inflation should be broadly stable for the next month or so, before slowing sharply over the balance of 2018.'