2018.01.1622:31:00UTC+00UK Inflation Rate Drops to 3%, the First Decline for 6 Months

UK inflation rate has dropped for the first time since June, mainly due to the impact of air fares. The rate fell to three percent in December, pulling back from November's rate of 3.1 percent, a six-year peak.

According to the Office for National Statistics, although airfares increased the previous month, it had a smaller impact than at the same point in 2016.

Inflation fell because the annual December rise in air fares was not as high as the previous year, the rate of price growth for recreational goods, including games and toys, also dropped. These categories are particularly sensitive to a fall in the exchange rate.

The ONS said it was too early to say whether this was the start of a longer-term reduction in the rate of inflation. It also notes that the slowing rate of growth was offset partially by higher tobacco prices, reflecting the duty increases that came into effect following the budget, as well as a rise in petrol and diesel prices.

The Bank of England has said it thinks inflation peaked at the end of 2017 and will fall back to its target of two percent in 2018.

Although the Bank may still look to raise interest rates from 0.5 percent, pushing the cost of borrowing to levels unseen since before the financial crisis, economists said there were still difficult patches ahead for the economy, which may be unsettled by the Brexit negotiations.

In November, the Bank's Monetary Policy Committee (MPC) raised its key interest rate for the first time in more than a decade from 0.25 percent to 0.5 percent.