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Home > UK inflation falls to zero for first time since recent records began

UK inflation falls to zero for first time since recent records began

27th March 2015 | Published by Evolution Money

The consumer price index, the UK’s official measure of inflation, is at its lowest since records began in 1989. Falls in fuel and food prices have brought inflation to zero.

The index fell from 0.3 per cent in January to zero in February and is expected to fall still further over the coming months as the UK enters a period of deflation.

Experts had predicted a fall to 0.1 per cent rather than zero but the prolonged slump in fuel prices and a food price war between major supermarkets led to the lower rate. Fuel fell by 16.6 per cent during the past twelve months and food prices by 3.4 per cent, according to the Office for National Statistics.

Zero inflation brings a welcome boost to household incomes in real terms. Wages fell in real terms between 2009 and 2014 and were consistently outpaced by inflation. However, since late 2014 that trend has reversed, bringing more income into household budgets. Recent figures show that wage growth was at 1.8 per cent from November 2014 to January 2015.

Inflation was last close to the government’s target figure of 2 per cent in June of last year. Zero inflation means that the Bank of England is highly unlikely to raise interest rates in the near future.

George Osborne welcomed the report, saying that it was great news for family budgets.

Prices are expected to fall still further over the next few months as the slump in oil prices brings lower prices for petrol and heating. Costs to manufacturers and food producers will also fall. A weak euro means that imports are cheaper, which could also bring inflation down still further.

Whilst inflation has not been as low since comparable records were first kept in 1989, it is estimated that it might have been lower in 1960.

Category: Money
This post was written by Evolution Money
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