LONDON: British inflation fell unexpectedly to its lowest level in more than 12 years in November, further easing a squeeze on consumers and leaving the Bank of England under no pressure to raise interest rates soon.
Reflecting a slide in global oil prices that has pushed down inflation around the world, and raised concerns about deflation in some countries, the consumer price index rose by an annual 1.0 percent in November, compared with 1.3 percent in October, the Office for National Statistics said on Tuesday.
Economists taking part in a Reuters poll had expected the CPI to slip back only to 1.2 percent.
Sterling hit a three-week low against the euro after the data and the yield on 10-year British government bonds fell to almost its lowest level since May last year.
Bank of England Governor Mark Carney said the fall in oil prices was an "unambiguously net positive" for Britain's economy but he also told reporters the BoE would look through the direct effect of the fall in oil prices on inflation.
The 1.0 percent CPI rate was the lowest since September 2002 and was pushed down by motor fuel prices which fell 5.9 percent.
Food prices slid 1.7 percent, their biggest fall since June 2002, as supermarkets compete for customers, and a slowdown in the rising prices of computer games also helped bring down the headline inflation rate.
Paul Hollingsworth, an economist with consultancy Capital Economics, said a sharp slowdown in core inflation showed the pressure on inflation was not just due to food and oil prices.
"While for now we think that outright deflation will be avoided, it is clear that inflation is set to fall significantly below 1 percent over the coming months and is likely to act as a significant brake on the pace of monetary tightening over the next couple of years," he said in an email to clients.
The Bank of England said last month it expects inflation to fall below 1 percent in the next few months, and since then oil prices have fallen further.
Carney would have to explain formally to finance minister George Osborne a move in the CPI of more than one percent away from the Bank's 2 percent target. But such a scenario probably would not be a worry for Osborne.
The fall in inflation has given some respite to households with average earnings rising by more than prices in September, welcome news for the government ahead of May's election.
Data on Wednesday is expected to show pay excluding bonuses picked up in the three months to October to rise 1.5 percent.
The BoE has predicted CPI will hit its target of 2 percent only towards the end of 2017. Investors are expecting the BoE to start raising rates only in late 2015 or possibly later.
The ONS said on Tuesday prices at the factory gate fell 0.1 percent in the year to November, less of a fall than forecast by economists, and showed their first monthly rise since April.
Separate data from the ONS showed house prices in Britain rose 10.4 percent in yearly terms in October, compared with 12.1 percent in September. Other surveys covering November have also shown the rapid pace of house price growth cooling.
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