UK inflation falls to 2-year low, offering households help before Brexit

* UK inflation hits 2-year low of 1.8 pct in Dec (Shanghai: 600875.SS - news)

* Inflation now below Bank of England's target

* Factory input costs rise at slowest pace since June 2016

* But consumer energy bills set to rise soon

(Adds comment from economists)

By Andy Bruce and William Schomberg

LONDON, Feb 13 (Reuters) - British inflation fell to a

two-year low in January, dipping below the Bank of England's

target and offering some relief to consumers who have tightened

their belts ahead of Brexit.

Consumer prices rose at an annual rate of 1.8 percent, down

from December's 2.1 percent, as a new government cap on

household power bills kicked in.

A Reuters poll of economists had forecast 1.9 percent.

British consumers have been pressured by inflation caused by

the slump in sterling against the dollar and euro after the

Brexit referendum in June 2016.

Inflation peaked at a five-year high of 3.1 percent in

November 2017, when households faced much greater price

increases than the European Union average.

That difference is now negligible, helping the Bank of

England as it holds off on fresh interest rate hikes pending the

outcome of Britain's Brexit stand-off with the rest of the EU.

"The further falling back in inflation facilitates the Bank

of England maintaining a 'wait and see' approach on interest

rates until after the UK leaves the EU," Howard Archer, chief

economic adviser to the EY ITEM Club consultancy, said.

British government bond prices rose after the data, pushing

10-year yields down by 2 basis points.

But Allan Monks, an economist with JP Morgan, said the

impact of the power price cap would be short-lived because

tariffs were likely to rise by around 10 percent in April.

"Unlike when the cap is lowered, energy firms don't have to

automatically raise prices when the cap is lifted. But we expect

they will," Monks said.

On Wednesday, npower became the third of Britain's six major

energy providers this week to say it would raise prices from

April.

Last week the BoE (Shenzhen: 000725.SZ - news) said inflation was likely to fall below

2.0 percent in coming months before picking up again.

Despite the fall in inflation since late 2017 and the

fastest wage growth in a decade, businesses have reported a

downturn in consumer spending in recent months.

Surveys show households are worried, with Britain on course

for a no-deal departure from the EU on March 29 unless Prime

Minister Theresa May can broker a revised deal with the EU that

would be accepted by her divided party and parliament.

Wednesday's figures from the Office for National Statistics

suggested less short-term inflation pressure in the pipeline.

Manufacturers' raw materials costs were 2.9 percent higher

than in January 2018, the slowest increase since June 2016, the

month of the Brexit referendum. Economists polled by Reuters had

expected input prices to rise by 3.8 percent.

(Reporting by Andy Bruce William Schomberg; Editing by John

Stonestreet and Hugh Lawson)