UK inflation turns negative for first time since 1960s

The CPI rate of inflation fell to minus 0.1% in April.

The CPI rate of inflation fell to minus 0.1% in April. - Credit: PA

Inflation in the UK turned negative for the first time in more than half a century in April, official figures showed today.

The Consumer Price Index (CPI) measure of inflation dipped to minus 0.1%, according to the Office of National Statistics (ONS). It is the lowest rate on record and comes after two previous months of zero inflation.

Estimates of past CPI rates suggest it was last negative in March 1960 when Harold Macmillan was prime minister and Dwight Eisenhower was in the White House.

The figure of minus 0.1% is in line with projections by the Bank of England in its quarterly Inflation Report last week. The bank said it expected inflation to fall below zero before picking up “notably” towards the end of the year as the effect of lower oil and food prices fades.

Today’s figures showed “core” inflation excluding volatile energy, food, alcohol and tobacco prices was also subdued. At 0.8% in April, it was at its lowest level since March 2001.

Food prices fell 3% year on year in April, the fourth month of deflation at around that level - an unprecedented run of prices falling at such a pace in the sector.

Fuel prices rose on the month, with a litre of petrol 2p more expensive than in March, meaning its downward pull on the year-on-year rate was smaller than before.

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But the timing of Easter dragged down on CPI as air and sea fare rises in April were much lower than in the same month last year.

CPI calculated to two decimal places was minus 0.12%, down from minus 0.01% in March. RPI, a separate measure which includes housing costs, was unchanged at 0.9%.

Last week, Bank of England governor Mark Carney wrote to the Chancellor for the second time this year to explain why CPI remained more than 1% off its 2% target.

He said he expected to write more such letters in coming months but stressed that a temporary period of falling prices should not be mistaken for a damaging spiral of “deflation”.

Such a prospect might have unwelcome consequences such as households and businesses putting off spending and investment.

Markit chief economist Chris Williamson said: “Deflation has hit the UK, but looks unlikely to stay for long.

“The ongoing lack of inflation is a boon for consumers, acting as a welcome surrogate for wage growth which, although showing signs of rising, remains subdued.

“Alongside falling unemployment, low prices, especially for fuel, have boosted consumer spending, which is consequently providing the main thrust to economic growth at the moment.

“Further weak inflation numbers are to be expected in coming months, but any dip into deflation is likely to be short-lived, and the UK shows few signs of sinking into a Japanese-style deflationary slump.”

Samuel Tombs of Capital Economics said: “There are still few signs that very low inflation is having malign economic effects - consumers are undertaking, not delaying, purchases and wage growth is picking up.”

Scotiabank’s Alan Clarke said: “Enjoy it while it lasts because there is a good chance that inflation will be back in positive territory next month.

“The emphasis is largely symbolic and it shouldn’t have come as a surprise to most people. Nonetheless, it is a low point and for now, it represents an obstruction to a Bank of England rate hike.

“That obstruction should begin to disappear around the end of the year when headline inflation is likely to reaccelerate towards 1% and beyond into 2016.”

Rain Newton-Smith, CBI director of economics, said: “With inflation set to remain below 1% this year, a rise in interest rates any time soon seems off the cards.

“Rates are likely to remain low into next year and beyond, continuing to help the domestic recovery.”

James Sproule, chief economist at the Institute of Directors said: “Deflation can be a chronic problem where it represents a lack of consumer confidence and an unwillingness to spend.

“This danger is very real in some parts of southern Europe, but is not even a distant threat in the UK.

“While deflation does cause the cost of debt to rise in real terms, the benefits to the wider economy of a period of falling prices far outweigh any downsides.”

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