U.K. Inflation Rate Falls to 1.6%, Lowest in Four Years

Britain’s inflation rate fell to the lowest in 4 1/2 years in March as gasoline and clothing prices pushed it further below the Bank of England’s target.

Consumer prices rose an annual 1.6 percent, compared with 1.7 percent in February, the Office for National Statistics said today in London. That’s the lowest rate since October 2009 and matched the median of 38 estimates in a Bloomberg News survey. Core inflation also slowed to 1.6 percent.

Inflation has been below the BOE’s 2 percent goal for the past three months, helping support Governor Mark Carney’s case for keeping the benchmark interest rate at a record-low 0.5 percent. The slowdown in price growth is also easing the squeeze on consumers, and data tomorrow may show wage increases are beginning to outpace inflation.

“Household purchasing power is on an improving trend,” said Alan Clarke, an economist at Scotiabank in London. “At the moment consumer spending growth is being boosted by falling savings, rising borrowing. If real incomes continue to improve over the coming quarters, then spending growth will be increasingly underpinned by solid fundamentals.”

London Housing

In a separate report today, the ONS said annual house-price inflation accelerated to 9.1 percent in February, the fastest since June 2010. In London, prices surged 17.7 percent, the biggest increase since July 2007.

The report highlights “the worrying strength of house prices in London, where talk of a bubble is already fully justified,” said Howard Archer, an economist at IHS Global Insight. “We believe the BOE may very well take further action later this year to try and dampen the housing market.”

The pound was little changed at $1.6724 as of 10:49 a.m. London time. It’s risen about 4.6 percent against a basket of nine developed-nation currencies in the past six months and the BOE’s Monetary Policy Committee has said its strength is damping inflation pressures.

The drop in the annual inflation rate in March was led by transport costs, particularly petrol prices, clothing and furniture, the statistics office said. From the previous month, consumer prices rose 0.2 percent, it said.

Retail Prices

“Prices under control, and a jobs-rich economic recovery are the only way to improve living standards,” Danny Alexander, chief secretary to the Treasury and a Liberal Democrat lawmaker, said in a statement. “This is yet more encouraging news for families.”

Average weekly earnings may have risen an annual 1.8 percent in the quarter through February, up from 1.4 percent, economists said before a labor-market report tomorrow. Excluding bonuses, wages may have increased 1.7 percent. That report may also show that unemployment fell to 7.1 percent in the period.

The statistics office said Easter didn’t have an impact on the March inflation data. The late timing of the holiday means it’s likely to affect the April numbers.

Retail-price inflation, a measure used in wage negotiations and as a basis for the inflation-linked bond market, also slowed last month, with the rate dropping to 2.5 percent from 2.7 percent. That’s the lowest since December 2009. Inflation by that measure excluding mortgage-interest costs was 2.5 percent.

Separate data showed that pipeline price pressures remain relatively subdued. Input costs for factories fell 0.6 percent in March from the previous month and were down 6.5 percent from a year earlier, the biggest annual drop since September 2009. Crude oil was the main driver of both the monthly and annual changes. Factory-gate prices rose 0.2 percent in March from February and were up 0.5 percent on the year.