Investing.com - The annual rate of change in Britain's consumer price index dropped to 2.1% last month, its lowest level since Jan. 2017, underlining the case for the Bank of England to hold off on further policy tightening amid the political crisis surrounding the UK’s departure from the European Union.
That was compared to 2.3% the month before and in line with expectations.
Traders widely expect UK’s central bank to make no changes to interest rates until uncertainty from continuing negotiations over Brexit is resolved.
British Prime Minister Theresa May faced a crushing defeat on Tuesday as the UK parliament rejected her Brexit deal. Opposition Labour Party leader Jeremy Corbyn called a vote of no confidence in May's government, to be held at 2:00 PM ET (19:00 GMT) on Wednesday.
Analysts postulate that the most likely scenario is an extension of the March 29 deadline when the UK is supposed to officially leave the EU.
“While the margin of May's loss was a surprise, the defeat itself was something the market had been pricing in for a long time and it appears that participants covered shorts in the pound after the vote,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
“The market is now factoring in the March Brexit deadline being extended. In the longer run it may boil down to two scenarios - a no-deal Brexit or no Brexit at all.”
Month-over-month, consumer price inflation rose by 0.2% in December.
That matched the prior reading and was in line with forecasts.
Core CPI, which excludes food, energy, alcohol, and tobacco costs, rose by 1.9% in December.
Analysts had expected the data to match the 1.8% rise seen in the prior month.
-- Reuters contributed to this report.