- Naeem Aslam, chief market analyst at Ava Trade
Consumer inflation in the UK fell more than expected in December, forcing the Bank of England Governor Mark Carney to write an official letter to the Chancellor George Osborne, explaining why consumer prices have been rising to slow recently. The last letter to the chancellor, which the central bank is legally obliged to write in case inflation strays more than 1 percentage point in either direction from the official goal, was written by then Governor Mervyn King in February 2012, when price increases were running above 3%. No letter has ever been triggered by inflation falling below the threshold since the BoE became independent in 1997. The UK's inflation rate dropped to 0.5% in December on an annual basis, the lowest level in 14 years, the Office for National Statistics reported. Economists believed that further declines seem likely, making the scenario playing out in the Eurozone, where deflation has become a headache for policy makers, possible for the UK's economy as well. Meanwhile, the core CPI was running at 1.3% in December, up from 1.2% in the preceding month.
Separately, UK house prices continued to fall, with house price inflation dropping to 10% in November, compared with 10.4% in the preceding month, the ONS said. Also, the two UK's largest mortgage providers, Rightmove and Nationwide, reported a deceleration of prices between November and December.
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