Factory gate inflation fell more than expected in December, official data showed, boosting expectations that the Bank of England will inject more stimulus into the struggling economy soon.
The Office for National Statistics said producer output price inflation slowed to 4.8 per cent on the year from 5.4 percent in November, a bigger drop than the fall to 5 per cent forecast by economists and the lowest rate since December 2010.
The figures lend support to the Bank of England forecast that inflation - still just off a recent three-year high of 5.2 per cent - will tumble early this year and dip below its two per cent target towards the end of 2012.
The drop in producer price inflation was driven by the first month-on-month decline in prices since June 2010, and is likely to be sustained as input price inflation tumbled to an annual rate of 8.7 per cent from 13.6 per cent the month before.
The cost of crude oil inputs rose by the smallest annual amount since November 2010, and chemical import costs rose by the least since March 2010.
The hefty overshoot in British consumer price inflation was driven by a rise in value-added tax, but also by higher costs for fuel and of imports.
The central bank stopped short of announcing an expansion to its quantitative easing programme on Thursday, but is widely expected to do so in February when it completes
its own assessment of growth and inflation.
Separate data released by the ONS at the same time showed that construction output edged up by 0.2 percent o n a non-seasonally adjusted basis in November, but was 1.6 percent lower on the year. In October, output fell by 1.0 percent on an unadjusted basis.
Britain is at risk of recession as global growth slows, government spending cuts bite and consumers rein in purchase s of all but most essential items in response to high inflation, tax hikes and slow wage rises.
City A.M. Reporter