ANNUAL UK inflation tumbled unexpectedly in December to its lowest in more than three years, further fuelling speculation that benchmark interest rates could be cut in the near term as Brexit weighs on the economy.

The Office for National Statistics yesterday said annual consumer prices index inflation had fallen from 1.5 per cent in November to 1.3% last month, its lowest since November 2016 and well below the Bank of England’s 2% target. Economists had forecast an unchanged rate of 1.5%.

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News this week from the ONS that UK gross domestic product fell 0.3% month-on-month in November has fuelled expectations the economy will turn out to have stagnated or even contracted during the fourth quarter of last year.

Annual core CPI inflation, which excludes energy, food, alcohol and tobacco, dropped from 1.7% in November to 1.4% in December.

Flagging the impact of Brexit on the economy in a speech last week, Bank of England Governor Mark Carney said: “The MPC (Monetary Policy Committee) has repeatedly emphasised that monetary policy cannot prevent either the necessary real adjustment as the UK moves to its new trading arrangements or the weaker real income growth likely to accompany that adjustment. Monetary policy does, however, have a role to play in supporting the economy during the adjustment process.”

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Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “Inflation of 1.3% gives the Bank of England ample scope to cut interest rates if the economy fails to quickly show clear signs of improvement following December’s decisive General Election result. A number of Bank of England MPC members have recently indicated that they could vote for an interest rate cut in the near term – and very possibly as soon as January 30 – if survey evidence does not show improvement over the next few weeks.”

Two MPC members, Michael Saunders and Jonathan Haskel, voted in vain for a cut in rates in November and December.