UK inflation rate falls to lowest recorded levels

25th March 2015

The UK’s inflation rate fell to zero in February, according to official figures from the Office for National Statistics (ONS).

It is the lowest inflation rate since records began; with the decline from 0.3 per cent in January to zero last month attributed to lower prices for food and computer goods.

February’s figure is the lowest rate of Consumer Prices Index (CPI) inflation since recorded levels began in 1988.
Analysts had anticipated an inflation rate of 0.1 per cent last month, so the CPI measure fell sharper than anticipated.

CPI became the main measure of UK inflation back in 2010; with the Retail Price Index (RPI) previously used including housing costs and mortgage payments.

The British Chambers of Commerce (BCC) believes rock-bottom inflation could aid UK economic growth.

David Kern, chief economist, BCC, said: “We remain convinced that there is very little risk of a long period of deflation.

“Inflation in the service sector, which accounts for 80 per cent of the UK economy, remains firmly above the government’s two per cent target, and core CPI inflation in February was 1.2 per cent.

“Together with higher earnings, lower inflation is boosting people’s spending power, and will contribute to economic growth in the year ahead.”

Rain Newton-Smith, director of economics at business lobby group, the Confederation of British Industry (CBI) believes the inflation rate fall means a rise in interest rates is unlikely to occur “anytime soon”.

“Despite inflation dropping to zero, it is unlikely we will see falling prices for a prolonged period, particularly as the pressure from lower oil prices fades.

“With the Monetary Policy Committee still alert to the risk of very low inflation becoming entrenched, a rise in interest rates anytime soon seems off the cards.”

However, unlike in the Eurozone, where prices are already showing annual falls, many UK economists believe consumer demand in Britain will remain steady due to robust employment growth and signs to suggest a rise in wages.

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