"With December’s inflation figures falling to the lowest level for nearly two years at 2.1%, we ended 2018 just above the Bank of England’s target of 2%. "
CPIH inflation, which is now used as its headline measure and which includes owner occupiers’ housing costs, fell to 2.0% from 2.2% the previous month.
The largest downward contributions came from falls in petrol prices and air fares.
Inflation is now expected to return to the Bank of England's 2% target as economic forecasters predict further falls in the coming months.
Kate Smith, head of pensions at Aegon, commented: “With December’s inflation figures falling to the lowest level for nearly two years at 2.1%, we ended 2018 just above the Bank of England’s target of 2%.
“However, with Brexit on the horizon and the uncertainty around what deal the UK will leave the EU with, it is still unclear what the inflationary pressures this may bring and whether households will continue to feel an ease in the cost of living or whether this might be swept away."
Tom Stevenson, investment director for personal investing at Fidelity International, added: “Close, but no cigar. UK CPI edged down in December to 2.1%, within touching distance of the Bank of England’s 2% target. With inflation forecast to fall below target next month and for much of 2019, a year of improving purchasing power looks to be the most likely scenario.
“While today’s inflation data will help UK households shake off the January blues, it raises some questions about what this means for the trajectory of interest rates. With UK CPI a whisker away from the Bank of England’s target, and last night’s vote providing more questions than answers on Brexit, it would seem that the Bank of England’s Monetary Policy Committee has little incentive to hike rates any time soon.
"The good news is that the pound seems to have taken political turmoil in its stride. Weaker sterling would threaten higher inflation but the prospect of a softer Brexit makes a rebound in the pound seem the likelier option."
