UK inflation eases to 0.5%, well below 0.7% forecast

UK inflation dropped well below 1% growth for the first time since June 2002, dragged by falling oil prices.

The consumer price index rose 0.5% year-on-year, compared to expectations of 0.7% and the previous month's 1%, the Office for National Statistics revealed.

The report is likely to add weight behind the Bank of England’s (BoE) argument to keep interest rates low.

The BoE is targeting inflation of 2%, which means Governor Mark Carney will have to write his first explanatory letter to the Chancellor detailing why inflation has missed the goal.

"Disinflationary pressures look set to continue in the first half of 2015," said Scott Corfe, head of UK macroeconomics at Centre for Economics and Business Research. "Retailers are still in a phase of intense competition, petrol prices should fall back further in the first half of the year and utility companies are likely to cut prices given developments in wholesale markets."