British consumer price inflation fell back to the Bank of England's (BoE) 2 per cent target in December, official data showed today.
The Office for National Statistics said the consumer price index rose by 0.3 per cent for a 2.0 per cent annual gain, in line with forecasts. That compared with 2.1 per cent in November and was the lowest since June.
Inflation has now eased for three consecutive months since hitting a peak of 2.5 per cent last September, boosting expectations UK price pressures have topped out and that the BoE may trim interest rates from 4.5 per cent later this year.
The pound fell to the day's lows after the figures were released, while UK interest rate futures moved to factor in a slightly greater chance of a rate cut this year.
BoE Governor Mervyn King said yesterday that the Monetary Policy Committee's central view remained one of steady growth and low inflation, though he noted that economic stability seen during the past decade had been less evident over the past 12 months.
The fall in inflation was largely due to falling petrol and diesel prices, which dropped more than during the same month in 2004. Air fares also had a downward effect as seasonal price hikes were smaller than a year ago.
But there was a large upward effect from clothing and footwear, where prices fell by less than a year ago.