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Inflation falls to new low in January

UK inflation fell to 0.3% in the year to January 2014, according to official figures.

The Consumer Price Index (CPI) rate of inflation fell a further 0.2% from December 2014 when it reached a 14-year low of 0.5%.

The Office for National Statistics cited cheaper food and fuel prices as the biggest contributors to the fall in the headline rate.

John Allan, national chairman of the Federation of Small Businesses, welcomed the falling inflation:

"The record fall in inflation will be welcomed by business, who have benefited from low oil prices. Low inflation will boost consumer spending power, providing welcome momentum to growth in 2015."

"Good deflation" predicted

New forecasts from the Centre for Economics and Business Research (Cebr) predict that the economy will enter a period of "good deflation" in March 2015.

According to the Cebr analysts:

  • prices will fall 0.3% in March 2015
  • deflationary pressures will slow to -0.1% in April 2015
  • inflation will average 0.4% during 2015.

This would be the first time ever that the headline CPI rate has entered negative territory.

The Governor of the Bank of England Mark Carney told the Chancellor last week in an open letter that the UK will not enter a sustained deflationary period.

Scott Corfe, head of UK macroeconomics at Cebr said:

"Record low inflation and rising earnings are going to drive the UK economy ahead this year, as households find themselves with more money to spend on discretionary purchases."

Mr Allan also played down the likelihood of prolonged deflation:

"We see the risks of sustained period of deflation as low, but would urge policymakers to be ready to act should these risks increase," he said.

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