Here’s the Office for National Statistics’ explanation for how cheaper energy has pulled inflation down over the last year

The largest downward contribution to the change in the CPIH 12-month rate came from housing and household services, where gas and electricity prices fell, between December 2018 and January 2019, by 8.5% and 4.9%, respectively.

The downward movement partially reflected the response from energy providers to Ofgem’s January energy price cap which came into effect from 1 January 2019.

Clothing and footwear price have fallen over the last 12 months, today’s inflation report shows.

That’s a sign that struggling retailers have been slashing prices in an effort to lure shoppers.

As you can see, food, alcohol, housing and transport all became more expensive other the last year – but by less than in the previous 12 months.

Cheaper energy costs helped to pull Britain’s inflation rate down to just 1.8% last month, below the Bank of England’s target.

Prices of electricity, gas and other fuels fell between December 2018 and January 2019 compared with price rises the same time a year ago.
These downward effects were partially offset by air fares, with prices falling between December 2018 and January 2019 by less than a year ago.

Newsflash: UK inflation has hit a two-year low of 1.8% in January, bringing some relief to households.

That’s lower than expected, and down from 2.1% in December.

More to follow….

UK furniture and homeware group Dunelm is also getting ready for Brexit.

It told the City this morning that it has been stockpiling some popular items, in case of a no-deal crisis.

The business imports less than 1% of its goods from EU countries. However, we have identified some risks arising from potential disruption at ‘deep-sea’ ports in the period following exit.

Actions have been taken within the business and throughout our supply chain to mitigate these risks, such as purchasing incremental stock of some best-selling lines and securing additional supply chain capacity.

Dunelm (like Galliford Try earlier) is also hedged against a sudden plunge in the value of the pound.

Sensible precautions, but Russ Mould, investment director at AJ Bell, fears they will eat into profitability.

European stock markets are all showing gains, following president’s Trump’s hint that he might give China more time to reach a trade deal.

• UK FTSE 100: up 33 points or nearly 0.5% at 7,166
• Germany’s DAX: up 55 points or 0.5% at 11,181
• French CAC: up 17 points or 0.35% at 5,074

UK housebuilder Galliford Try has added its voice to the chorus urging MPs to avoid a no-deal Brexit.

In its latest financial results, the company says crashing out of the EU would badly hurt the economy:

We consider that a controlled departure under the terms of a withdrawal agreement between the UK and the EU will have no significant direct impact, with supply chains and EU and other overseas labour able to adjust over time as detailed future arrangements become clear.

If the UK leaves without a deal, the biggest impact we foresee is the effect on our markets, and on Linden Homes market in particular, of a potential severe decline in consumer confidence and economic activity in general

Galliford Try adds that it has taken steps to protect its business against shortages of critical materials and products, but it’s “impractical to try to insulate our business entirely”.

Britain’s FTSE 100 has opened 25 points higher at 7,157.

That takes it closer to last week’s four-month high.

Paul Donovan of UBS Wealth Management says hopes of a US-China trade deal are bubbling, especially following Donald Trump’s comments.

Equity market investors can practically taste the beautiful piece of chocolate cake served on a Mar a Lago plate.

Enthusiasm about the prospect of a US-China trade deal led equities to rally. The hope is that not only will there be no new taxes, but some of the existing taxes may be reversed.

Sterling is bobbing around the $1.29 mark against the US dollar this morning, roughly where it ended yesterday. Today’s inflation data could move the currency pair, though.

Asian markets reacted positively to Donald Trump’s hint, hitting their highest levels in four months.

China’s Shanghai Composite index has surged by 2%, as optimism builds that new tariffs can be avoided.

Japan’s Nikkei gained +1.34%, and Hong Kong’s Hang Seng rose 1.1%.

Senior US officials, including treasury secretary Steven Mnuchin, are due to hold high-level trade talks in Beijing tomorrow. So we could be close to a breakthrough.

Jim Reid of Deutsche Bank says Trump’s suggestion of letting the March 1st tariff deadline “slide” is moving markets.

US negotiators are having high-level meetings with Chinese officials in Beijing this week, and flexibility on the deadline would reduce the pressure for an immediate breakthrough.

Any delay to higher tariffs would be positive for markets, so the news was greeted by an equity rally, with cyclical and trade-dependent stocks outperforming.

Overnight, Donald Trump has hinted that he could extend the deadline to reach a trade deal with China.

The US president revealed that the existing plan – for a trade deal by March 1st – could be rejigged, if Washington and Beijing are making progress.

Trump told a cabinet meeting that:

“If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while.

“But generally speaking, I’m not inclined to do that.”

If a deal isn’t reached, America will hike the tariff on around $200bn of Chinese imports from 10% to 25%, which could have a serious chilling effect on trade.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A double-dose of cost-of-living data should keep investors on their toes this morning, as optimism over a trade war deal continues to build.

Inflation in the UK (due at 9.30am) is expected to fall from 2.1% per year to 2%. That would give the Bank of England the rare treat of actually hitting its consumer price index target – if only for one month.

In normal times, CPI would be a good benchmark for future interest rate rises, and thus the value of the pound. But right now Brexit development – and the latest careless talk in Brussels bars – probably has a bigger impact.

US inflation is also expected to ease. Cheaper energy could pull the US annual CPI rate down to just 1.5% or 1.6% today, from 1.9% in December.

But, any sign of inflationary pressures bubbling under the surface will alarm America’s central bankers at the Federal Reserve, as they wonder whether to raise interest rates again.

As Royal Bank of Canada’s Elsa Lignos explains,

The US headline inflation dynamic is going to be weak in the first half of 2019 – but that is all down to energy prices. Underlying that, core inflation should actually be pretty firm (our economists note demand is strong, evidenced by strong chain-store sales and very healthy income growth). The Fed has explicitly said it can wait as long as inflation is under control – so stronger inflation supports a less dovish outlook and stronger US dollar.

We also get new UK house price figures, and a healthcheck on the eurozone’s factories.

The agenda

• 9.30am GMT: UK consumer price index for January
• 9.30am GMT: UK house price data for December
• 10am GMT: Eurozone industrial production for December
• 1.30pm GMT: US consumer price index for January