U.K. inflation yet again decelarted less sharply than expected. December CPI fell 0.4% m/m (median -0.8%) and the annual rate slipped to 3.1% (median 2.9%) from 4.1%. Core CPI fell to 1.1% y/y from 2.0%, however, hitting its lowest rate since August 2006. RPI fell 1.4% m/m, pushing the y/y rate down to 0.9% (median 0.8%) from 3.0% and the RPIX slowed to 2.8% y/y (median 2.3%) from 3.9%. The ONS reported that two thirds of the 2.5% VAT cut coming into effect in December were passed on by shops, while almost all internet retailers passed on the full cut but few service firms did. Data hence shows that some stickiness remain, even though deflation risk still lingers.