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Bank of England says Britain set for deflation for the first time since 1960



Britain is heading for consumer prices deflation for the first time in more than five decades, the Bank of England said yesterday.

The inflation rate as measured by the consumer prices index (CPI) slumped to just 0.5 per cent in December on the back of collapsing global oil prices. The Bank said its Monetary Policy Committee (MPC) “now judges it more likely than not that headline CPI inflation will turn negative at some point in the spring and will remain subdued for much of the rest of the year”.

However, the Bank’s Governor, Mark Carney, also said deflation in the UK was “unlikely to endure for very long” and stressed it was different to the destructive deflation that has ravaged the Japanese economy for much of the past two decades.

Mr Carney added that falling energy and food prices would support household incomes and boost the growth of real take-home pay this year to its fastest rate in a decade.

The CPI has been the Bank’s official target measure of inflation since 2003 and the official statistical series only goes back to 1989. But an experimental model created by the Office for National Statistics last year produced a longer record of inflation using CPI. The last time inflation, on this measure, was negative was in March 1960.


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Source: Independent UK