Wednesday 13 February 2019 9:40 am | Updated: Monday 03 June 2019 1:12 am

Inflation drops to two-year low of 1.8 per cent as electricity and fuel prices fall

The UK inflation rate fell to a two-year low of 1.8 per cent in January as electricity and gas prices continued to drop.

The Consumer Price Index dropped from 2.1 per cent in December, falling below the Bank of England’s two per cent target for the first time since 2017.

The Office for National Statistics (ONS) said the fall was led by a downward trend in prices of electricity, gas and other fuels.

Head of inflation at ONS Mike Hardie said: "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."

EY Item Club economist Howard Archer said it was "pleasing" news for consumers.

He said: "Lower inflation in January reinforces the recent improvement in consumer purchasing power following firmer earnings data.

"This is helpful news from an economy currently being buffeted by heightened Brexit uncertainties."

Sterling lost slight gains against the dollar following the CPI data, remaining flat for the day at $1.2891.

Currency analyst of OFX Hamish Muress said the inflation rate, along with growing retail prices would have caused volatility for the pound "in a time gone by" but said that Brexit was now dictating the agenda.

The inflation rate fell lower than analysts' forecasts of 1.9 per cent but the Bank of England's prediction was on the money.

Economists said it facilitated the Bank's 'wait and see' approach on interest rate hikes ahead of Britain's departure from the EU.

"We continue to think the Bank of England would press ahead with interest rate hikes if a Brexit deal is reached despite today's slip in inflation below target," Andrew Wishart, from Capital Economics said.

"But with inflation fairly well behaved, the Bank will also have the ability to support the economy by cutting interest rates if there were a no deal Brexit," he added.