UK consumer prices rose at the slowest pace in two years in January led by lower oil prices, and fell below the Bank of England's target, while core inflation remained steady.
The consumer price index rose 1.8 percent year-on-year following a 2.1 percent increase in December, figures from the Office for National Statistics showed Wednesday. Economists had expected 2 percent inflation.
"The fall in inflation is due mainly to cheaper gas, electricity and petrol, partly offset by rising ferry ticket prices and air fares falling more slowly than this time last year," ONS Head of Inflation Mike Hardie said.
Headline inflation was the slowest since January 2017, when prices rose at the same pace. Inflation peaked at 3.1 percent in November 2017.
Core inflation was steady at 1.9 percent at the start of the year, in line with economists' expectations.
Even if inflation continues to remain below 2 percent in the coming few months, in sync with the central bank's projections, economists does not rule out a rate hike this year.
The Bank of England is set to stay focused on the decade-high wage growth and the impact of Brexit.
While leaving rates and bond purchases unchanged last week, the bank hinted at the need for a gradual and limited tightening of monetary policy in the medium term, to return inflation to the target.
The UK is set to leave the European Union on March 29, but Prime Minister Theresa May is yet to figure out how this is going to happen - whether the country would leave the bloc with some deal on trade and other crucial matters or quit without any arrangements.
The central bank's analysis has projected that inflation could hit 6.5 percent as the pound dives in a no-deal or disorderly Brexit.
BoE Governor Mark Carney also predicted that food prices could jump as much as 10 percent if there is a 25 percent slump in the pound due to a no-deal Brexit.
"The outlook for interest rates is still solely dependent on Brexit and that means policymakers will remain on the sidelines for the time being," ING economist James Smith said.
Meanwhile, households have reined in their spending despite the decade-high wage growth and slowing inflation.
A survey by IHS Markit and digital payment solutions provider Visa showed on Wednesday that household spending declined fell for a fourth straight month in January.
Consumer expenditure dropped 1.3 percent year-on-year, marking the worst fall since April 2018, led by a further decline in high street spending.
ONS data also showed that input price inflation eased to 2.9 percent from a revised 3.2 percent. In contrast, economists had expected a faster rate of 3.8 percent.
Input price inflation slowed for the fourth consecutive month and the latest was the lowest since June 2016.
The core input price inflation slowed to 4.6 percent from 4.7 percent.
Output price inflation eased to 2.1 percent from a revised 2.4 percent in December, which was slightly slower than the 2.2 percent economists had predicted.
The core output price inflation was steady at 2.4 percent in January.
Another report from ONS showed that UK house price inflation slowed to 2.5 percent in December from 2.7 percent in November, in line with economists' expectations.
The latest house price growth figure was the lowest since July 2013, when it was 2.3 percent.
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