UK Inflation drops to 0.5%

With many forecasters expecting UK December CPI Inflation to come in at 1%, the drop to 0.5% comes as a surprise. Indeed, 12 months ago, something nearer the Bank of England's 2% target was the consensus. Of course, the halving of oil prices has not helped and neither has the ongoing supermarket price wars, both of which, for now, is great for the consumer. Also, as around a fifth of imports comes in from the EU, it is perhaps no surprise that their battle against deflation is now spilling over into UK prices. Markets must now brace themselves for the possibility that inflation falls further in January to around 0.2% which will extend the prospect of interest rates staying lower for longer.