British inflation hits record low

17th February 2015, Comments 0 comments

Britain's annual inflation rate slowed to a record low of 0.3 percent in January on the back of plunging oil prices and lower food costs, official data showed Tuesday.

"The Consumer Prices Index (CPI) grew by 0.3 percent in the year to January 2015, down from 0.5 percent in December," the Office for National Statistics said in a statement.

"Falling prices for motor fuels and food were the main contributors to the slowdown in the rate of inflation," it added.

Inflation in Britain could meanwhile turn negative within months and interest rates cut, Bank of England governor Mark Carney said last week, signalling fresh risks to the economy before the country's election.

While a sustained period of falling prices may sound good for consumers, deflation can trigger a vicious spiral in which businesses and households delay purchases, throttling demand and causing companies to lay off workers.

"As expected, UK inflation fell in January to 0.3 percent, its lowest level since the Office for National Statistics began to publish the Consumer Prices Index in 1997," said Ben Brettell, senior economist at stockbroker Hargreaves Lansdown.

"Predictably, the main contributors were falling fuel and food prices. In the year to January food prices fell by 2.8 percent and fuel prices by 16.2 percent. Together these factors depressed the overall rate of inflation by 0.9 percentage points."

A basket of goods and services that cost £100 ($154, 135 euros) in January 2014 would have risen by only 30 pence by last month.

Crude oil prices slumped 60 percent between last June and January, resulting in cheaper petrol and lower manufacturing costs generally.

The Bank of England has forecast that 12-month CPI inflation will average at about zero in the second and third quarters of 2015, before climbing at the end of the year.

"Unlike in the eurozone, where there is a risk of a negative spiral of falling prices and weakening economic performance, the UK's bout of deflation is expected to be short-lived," Scott Corfe, an analyst at the Centre for Economics and Business Research, said in the wake of Tuesday's data.

Britain, presently governed by a Conservative-Liberal Democrat coalition, holds a general election in May.

A fragmented vote in which no party wins an overall majority is seen as the most likely result, meaning smaller parties will probably have to prop up either Prime Minister David Cameron's Conservatives or the main opposition Labour.


© 2015 AFP

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