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Fall in inflation points towards interest rate cut

The prospect of interest rates being cut at the end of the month is edging closer, following a 0.2% drop in the UK's inflation rate last month.

The Office for National Statistics said the Consumer Prices Index (CPI) rate of inflation dropped from 1.5% in November 2019 to 1.3% in December.

Last month's figure was the lowest monthly CPI rate of inflation in the UK since November 2016, and falls below the Bank of England's 2% target.

Should an interest rate cut materialise, it will be on the grounds that the economy needs support from lower borrowing costs in the coming months.

The base rate of interest set by the Bank stands at 0.75% and reports suggest a quarter-percentage point cut to 0.5% could be on the cards.

The Bank's nine-member Monetary Policy Committee (MPC) determines the official rate of interest on a quarterly basis.

In November 2019, the MPC voted 7-2 in favour of keeping interest rates on hold and the latest decision is expected to be a close call.

According to the BBC, three members of the MPC have recently indicated they will vote in favour of lowering borrowing costs on 31 January 2020.

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