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UK Inflation Lower Than Expectations

British households kept a tighter grip on their credit cards last month as spending grew at one of the slowest annual rates of the past three years, data showed, adding to signs that consumer spending is starting to lose momentum.

Robust consumer spending helped Britain’s economy to outpace its peers last year, even after June’s Brexit vote, but most economists think rising inflation as a result of sterling’s hefty slide will eat into growth in 2017.

Consumer spending, adjusted for inflation, rose just 0.4 percent on the year in January, down sharply from 2.5 percent in December and – aside from August, shortly after the Brexit vote – the weakest annual growth rate in over three years.

The British Retail Consortium reported last week that spending in the November-January festive period grew by the smallest amount since the depths of the financial crisis, while the Confederation of British Industry said its January retail gauge fell by the most since records began in 1983.

On the month, however, consumer spending was up by 0.5 percent after a 2.5 percent dip in December – broadly matching the picture which economists expect from narrower official retail sales data due on Friday.

Most economists think inflation neared the BoE’s 2 percent target last month, after undershooting it for three years which helped support households’ disposable income during a period of lacklustre wage growth.

With Sterling, down around 15 percent against the U.S. dollar, the BoE expects inflation to reach 2.7 percent by the end of 2017 and for disposable incomes to stagnate

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