Investing.com - The pound fell to session lows against the dollar on Tuesday after data showed that the annual rate of U.K. inflation rose at the slowest rate since May 2000 in December, indicating that rates will remain on hold for the rest of this year.
GBP/USD hit lows of 1.5078, down from 1.5115 ahead of the report, and not far from last Thursday’s trough of 1.5033, the weakest since July 2013.
The drop in the pound came after the Office of National Statistics reported that the annual rate of consumer inflation slowed to 0.5% last month from 1.0% in November. Economists had expected a smaller decline to 0.7%.
Consumer prices were unchanged from a month earlier, compared to expectations for an uptick of 0.1% after falling 0.3% in November.
The ONS said inflation was flat in December due to “falling price movements for gas and electricity”. In addition, transport costs fell by 0.2% from a month earlier, due to falling petrol and diesel prices.
The slowdown in inflation underlined expectations that the Bank of England will keep interest rates on hold at record lows for most of this year.
Core inflation, which strips out more volatile food and energy costs rose 1.3% last month, up from 1.2% in November, but below forecasts for a reading of 1.4%.
The retail price index increased 1.6% in December, broadly in line with forecasts.
The data also showed that the house price index climbed 10.0% in November, below expectations for a gain of 11.1% and down from 10.4% in October.
Elsewhere, the pound was lower against the euro, with EUR/GBP rising 0.21% to 0.7815.
The euro’s gains were held in check amid heightened expectations that the European Central Bank could embark on full blown quantitative easing as soon as its next meeting on January 22.