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LONDON (Alliance News) - UK consumer inflation eased by more than expected to a record low in January on falling motor fuel and food prices, buttressing the Bank of England's recent assessment that it is moving into negative territory. Output prices also logged their biggest fall on record.

Annual inflation fell to 0.3% in January from 0.5% in December, the UK Office for National Statistics reported Tuesday. It was forecast to slow to 0.4%. This was the lowest since records began in 1989. On a monthly basis, consumer prices plunged 0.9%, the biggest monthly fall since January 2001, after staying flat in December. Economists had forecast a 0.8% drop.

However, core inflation, which excludes energy, food, alcoholic beverages and tobacco, edged up to 1.4% in January from 1.3% a month ago.

Food and non-alcoholic beverage prices fell 2.5% and transport costs slid 2.8%. Meanwhile, clothing and footwear costs rose 1.4% after falling for three straight months.

The increase in core inflation reflected the fact that more retailer discounting than usual happened in December and November, with the result that many shops introduced full-priced new stock earlier than normal in January, IHS Global Insight's Chief UK Economist Howard Archer said.

With few signs that low inflation is becoming ingrained, the period of deflation in the UK should be of the "good" sort, Paul Hollingsworth, a UK economist at Capital Economics said.

The Bank of England last week said inflation was expected to fall further in the near term, and to temporarily turn negative as falls in energy prices continue to be passed through. In the first letter to Chancellor of the Exchequer explaining why inflation moved away from the 2% target by more than one percentage point, Governor Mark Carney said the UK is not experiencing 'deflation'.

Inflation is expected to be at 0.5% this year and 1.8% in 2016, the BoE projected in its Inflation Report. Inflation is expected to exceed the 2% target slightly in 2017.

Another report from the ONS showed that UK output prices continued their downward trend for the seventh straight month in January due to falling costs of crude oil and food products.

Output prices fell 1.8% year-on-year, bigger than a 1.1% drop in December and a 1.4% fall forecast by economists. This was a record fall for the index since data began in 1997. On a monthly basis, output prices decreased again by 0.5%. Economists had forecast a 0.3% decline.

Meanwhile, house prices in the UK rose at the slowest pace in eight months during December, figures from the Office for National Statistics showed. The house price index climbed 9.8% annually in December after a 9.9% rise in the previous month. Economists had expected a 9.5% increase.

This follows the house price increases the UK has experienced since April 2012 and is driven in large part by increases in London, the agency said. House prices in London rose 13.3% and those in South East climbed 11.5%. Excluding London and the South East, UK house prices increased 7.4% in the 12 months to December.
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Markets: London stock prices are higher at midday, improving as the morning went on, with the investors still waiting for answers on Greece, after the Eurogroup meeting concluded on Monday with no progress. US futures point to a mixed opening following the President's Day holiday on Monday, with the DJIA pointed marginally down, the S&P 500 down 0.1% and the Nasdaq 100 up 0.1%.

FTSE 100: up 0.3% at 6,874.40
FTSE 250: up 0.2% at 16,895.91
AIM ALL-SHARE: up 0.3% at 705.22
GBP-USD: up at 1.5381
EUR-USD: up at 1.1429
GOLD: down at USD1,221.63 an ounce
OIL (Brent): up at USD62.22 a barrel
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Top Corporate News
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InterContinental Hotels Group posted a flat pretax profit for 2014, but said revenue per available room growth was being driven by a strong supply and demand story in the Americas, the group's biggest region. The hotels group reported an operating profit of USD651 million for 2014, down 3% on 2013's USD668 million profit. The decline was caused by hotel disposals and by liquidated damage receipts in 2013 that weren't all repeated, as well as revenue dipping 2% to USD1.86 billion from USD1.90 billion. IHG said pretax profit for the year was flat at USD600 million. It declared a 10% increase in its total dividend per share for the year to 77.0 cents.
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Two of Tesco's largest shareholders are backing the appointment of Archie Norman as chairman, with a decision expected to be made by the company as early as this week, the Financial Times reported. Two top-ten investors are pushing the company to end its search for a replacement for outgoing Chairman Richard Broadbent by going for Norman, the former chief executive of Asda and current chairman of ITV, the FT said. According to people familiar with the situation, Norman has been approached about the role.
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Canadian property and casualty insurer Fairfax Financial Holdings said it has reached a deal with Brit to buy the FTSE 250-listed insurance company for around USD1.88 billion. Fairfax said Brit shareholders will get 305 pence per share, inclusive of any final dividend for the year to the end of December. Fairfax said the offer represents an 11% premium to Brit's closing price on Monday of 274.2 pence per share. The Canadian group said it has received irrevocable undertakings to accept the offer from entities managed by private equity companies Apollo Global Management and CVC Capital Partners in respect of approximately 294 million shares in Brit, around 73% of its issued share capital.
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Shares in John Wood Group rose after it increased its dividend for the full year and said it intends to increase the dividend further from 2015 onwards. The good news for shareholders came as the oil-services company reported a rise in earnings, profit and revenue in 2014. For the year ended December 31, John Wood reported a 3.1% rise in earnings before interest, tax and amortization of USD549.6 million, from USD533.0 million in 2013. The rise was caused by increased revenue and by the company's production services unit providing 30% year-on-year growth in EBITA in 2014. John Wood said the improved EBITA was a result of operators focusing on improving efficiencies following the fall of the oil price during the second half of 2014 and its acquisitions during the year, which gave it more exposure in "areas of growth" such as the US onshore market.
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Balfour Beatty launched its business transformation programme, 'Build to Last', as the group looks to recover from a series of profit warnings over the past year. The construction and support services company said the programme will focus on strengthening its financial controls and transparency, on key employee and sub-contractor retention, on its bidding, contracting and risk review process for projects, and on employee safety.
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AIM Movers
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Lifeline Scientific, up 22%. The medical technology company said it expects revenue for 2014 to be ahead of market expectations on the back of a strong second half performance. Ironveld, up 13%. The company said its critical infrastructure programme application for its 15 megawatt smelter has been approved by the South African government. Tandem Group, up 13%. The sports equipment company said its 2014 revenue rose on the back the acquisition of Pro Rider and robust like-for-like sales growth. Monitise, up 12%. The mobile banking software provider said its first-half pretax loss widened amid its continued transition away from upfront licence revenue to a subscription model, as speculation about potential suitors mounts after the payments company put itself up for sale last month.

Ferrex, off 14%. The miner reported a wider pretax loss for the year and reported a low cash balance, but said it is confident it will secure further funding to move into production during 2015, which will generate the company's maiden revenue. Hargreaves Services, down 9.8%. The supplier of solid fuel and bulk material logistics reported a significant fall in profit for the first half of the year as revenue declined, but the company increased its interim dividend in line with its previous guidance.
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Other Top Economics And General
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Greece has no alternative but to ask for an extension to its existing bailout in order to break the latest impasse over its economic future, the head of the Eurogroup of eurozone finance ministers insisted. On Monday, Greek Finance Minister Yanis Varoufakis and his eurozone counterparts failed for the second time in five days to find common ground on the way forward for the country's bailout. The new Greek government has pledged to end the painful austerity programme imposed by international creditors. "I hope that they will ask for an extension of the programme. And once they do that, we can allow flexibility inside the programme," Eurogroup chief Jeroen Dijsselbloem said ahead of talks in Brussels with all 28 EU finance ministers.
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The leaders of Germany, Russia and Ukraine have agreed "concrete steps" to enable a team of international monitors to oversee the implementation of a ceasefire agreement in eastern Ukraine, a German government spokesman said. German Chancellor Angela Merkel, Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko, spoke by phone and discussed ways of allowing observers from the Organization for Security and Co-operation in Europe (OSCE) into the strategic rail hub of Debaltseve, spokesman Steffen Seibert said.
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Home prices in the majority of the Chinese cities dropped in January, data from the National Bureau of Statistics showed. Prices of new houses dropped month-on-month in 64 of the 70 cities surveyed by the statistical office. Prices rose in two cities but remained flat in four cities.
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Egypt called for international support as its air force hit Libyan militants loyal to the Islamic State militant group in response to the beheadings of 21 of its citizens. As warplanes struck the militant stronghold of Derna in eastern Libya, Foreign Minister Sameh Shoukri headed to New York, where he was expected to ask UN Security Council members for backing against the jihadists. Egypt was to demand that the extremist group be met just as forcefully in Libya as in Syria and Iraq, where a US-led coalition is engaged in an air campaign against it, Foreign Ministry spokesman Badr Abdel-Aty said.
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Denmark's strong "sense of community" will prevail over the threat posed by "those who want to harm us," Prime Minister Helle Thorning-Schmidt said at a memorial service for victims of weekend attacks in Copenhagen that claimed two lives. The memorial was attended by an estimated 30,000 people, many carrying torches. Danish politicians, the Danish crown prince, the Swedish prime minister and the foreign minister of Norway were also present. The memorial service was held near the scene of the first attack where film director Finn Norgaard, 55, was killed and three police officers were wounded.
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Afternoon Watchlist (all times in GMT)

13:30 US NY Empire State Manufacturing Index
13:55 US Redbook index
15:00 US NAHB Housing Market Index
17:00 Switzerland SNB Chairman Jordan Speech
17:45 US Philadelphia Fed's Plosser speech
21:00 US Net TIC Flows
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Wednesday's Key UK Corporate Events

Coca-Cola HBC - Full Year Results
Galliford Try - Half Year Results
A&J Mucklow - Half Year Results
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Wednesday's Key Economic Events (all times in GMT)

China Chinese New Year Eve holiday
Japan BoJ Monetary Policy Statement and Press Conference
08:00 EU non-monetary policy ECB meeting
09:30 UK Bank of England Minutes
09:30 UK ILO Unemployment Rate, Claimant Count and Average Earnings
10:00 EU Construction Output
10:00 Switzerland ZEW Survey
12:00 US MBA Mortgage Applications
13:30 US Producer Price Index
13:30 US Housing Starts and Building Permits
13:30 Canada Wholesale Sales
14:15 US Industrial Production and Capacity Utilization
19:00 US FOMC Minutes
22:00 US FOMC Member Powell Speech
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By Tom Waite; thomaslwaite@alliancenews.com; @thomaslwaite

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