18 January 2018


CPI inflation rate eases for the first time since June 2017

The UK inflation rate slowed in December, suggesting that upward pressure from the fall in the pound post-Brexit may have subsided. Meanwhile, surveys point to resilient growth in the fourth quarter of 2017 and manufacturing growth remains strong.

CPI inflation rate eases for the first time since June 2017

CPI inflation edged down to 3.0% in December 2017 (from 3.1% in November) – in line with consensus expectations. The decrease in headline CPI inflation was mainly driven by lower prices of recreational goods (mostly games & toys and audio-visual equipment). While air fares rose sharply in December (as they tend to at the end of every year) they still dragged on CPI inflation, because they now have a lower weight in the CPI basket compared to a year ago. December’s inflation data suggests that the upward pressure on prices from the post-referendum fall in the pound has likely peaked – as evidenced by the gradual fall in inflation in the most import-intensive parts of the CPI basket.

IHS Markit’s composite PMI remained broadly unchanged at 54.9 in December, compared with 54.8 in November. Overall, the average for Q4 (55.2) was above the average for Q3 (54.1), suggesting that economic growth may have ticked up a little towards the end of last year. The increase in the average composite PMI for Q4, along with the broad-based sectoral growth, chimes with the CBI growth indicator’s more positive performance for the quarter (+19% in the three months to December, compared with +11% in the three months to September).

The pick-up in the composite PMI was driven by the services sector PMI, which rose to 54.2 in December from 53.8 in November. The manufacturing PMI posted its strongest quarter in three years, despite easing to 56.3 in December from a 51-month high of 58.2 in November. The construction PMI (which is not included in the composite) slipped to 52.2 in December, from 53.1 in November. Despite the acceleration in activity, Markit reported signs that trends in business investment and hiring had deteriorated as companies delayed spending decisions pending greater clarity over Brexit.

Industrial production grew by 0.4% in the month to November 2017, in line with consensus expectations. This reflected both an uptick in energy output (due to colder than average temperatures in November) and continued growth in manufacturing output. Total production increased by 1.2% in three months to November, building further on the strong growth seen over much of H2 2017. Meanwhile, construction output contracted for the sixth consecutive rolling quarter (falling by 2%) – the fastest fall since August 2012. The accelerated fall in construction output in the three months to November was largely driven by decreases in private commercial work.