UK inflation edges up to one-year high in January as fuel price fall slows

[February 16, 2016]  LONDON - British annual inflation edged up to a 12-month high last month, offering modest signs that price growth may be climbing off 2015's record lows, official figures showed on Tuesday.

Consumer price inflation dropped by 0.8 percent on the month, reflecting post-Christmas discounts and a drop in airfares. But the annual rate rose to 0.3 percent, its highest since January 2015, the Office for National Statistics said, and in line with economists' expectation in a Reuters poll.

British annual inflation has been below the Bank of England's 2 percent target for two years and last year it was zero, the lowest since comparable records began in 1950.

The BoE said earlier this month that it expected inflation to stay below 1 percent all year and to undershoot its target until 2018, due to the global slump in oil prices, the effect of past rises in sterling and lackluster wage growth.

The ONS said January's rise in inflation was caused by smaller falls in food and fuel prices than a year ago, and a modest rise in the price of clothes.

North Sea oil prices dropped to a 12-year low of $27.10 last month and almost halved over the past 12 months.

But the ONS's measure of fuels and lubricants costs was just 7.3 percent lower than in January 2015, the smallest drop since November 2014.

Fears that a weakening global economy and sharp stockmarket falls might sap the strength of Britain's moderate domestic recovery mean few economists expect the BoE to raise rates before late this year at the earliest.

Many in financial markets think it could take much longer, and see a risk that the BoE could instead be forced to cut rates below the record-low 0.5 percent where they have languished for almost seven years.

Germany's Bundesbank cut its forecast for 2016 inflation to just 0.25 percent on Monday, blaming the fall in oil prices.

An ONS measure of core consumer price inflation -- which strips out changes in the price of energy, food, alcohol and tobacco -- fell more than expected to 1.2 percent, reflecting a big downward push from lower airfares.

Factory gate prices fell 1.0 percent on the year compared with forecasts of a 0.9 percent annual drop.

The ONS also released figures for December house price inflation, which showed an 6.7 percent annual rise across the United Kingdom as a whole compared with 7.7 percent in November.

In 2015 overall, prices rose by 7.9 percent up from 5.1 percent in 2014. A shortage in housing supply is expected to keep the market under pressure.

(Reporting by David Milliken and Andy Bruce)

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