UK annual inflation hits three-year low

British annual inflation slid to the lowest level in more than three years in December, increasing the chances of an interest-rate cut by the Bank of England before Brexit.

The Consumer Prices Index 12-month rate dropped to 1.3 percent last month from 1.5 percent in November on falls in the prices of hotel rooms and women’s clothing, the Office for National Statistics said in a statement.

At 1.3 percent, it was the lowest level since November 2016, while analysts’ consensus forecast had been for no change.

“This gives the Bank of England all the excuse it needs to cut later this month,” said Neil Wilson, chief market analyst for Markets.com.

The weak inflation update, that weighed on the pound, comes after official data on Monday showed British economic growth has stalled, as Brexit and political uncertainty slashed manufacturing output at the end of last year.

Britain will leave the European Union on January 31 after Prime Minister Boris Johnson’s convincing general election victory in December finally broke the Brexit deadlock.

With the inflation data  “coming off the back of ... weaker GDP and industrial production numbers, it does not look as though the economy was firing on all cylinders at the tail end of last year”, Wilson said.

“While there may well be a ‘Boris Bounce’ in the offing, I rather think the die is cast in favour of a rate cut” this month.

The Bank of England, whose main rate stands at 0.75 percent, will give its latest decision on British borrowing costs on January 30.

It will follow the final BoE rate-setting meeting for governor Mark Carney, who is standing down to become UN special envoy on climate action and finance.

After serving six years in the top seat, Carney will be replaced in mid-March by Andrew Bailey, head of Britain’s Financial Conduct Authority watchdog.