Inflation has fallen to the lowest 12-month rate on record as the oil price slump and falling food prices continue to cut living costs.
Consumer prices index inflation was just 0.3 per cent in the year to January 2015, beating the previous low of 0.5 per cent recorded in May 2000 and December 2014, according to the Office for National Statistics.
The new figures come just days after Bank of England Governor Mark Carney warned inflation is set to reach negative levels this Spring before holding at 0 per cent for Q2 and Q3.
The ONS says the reduction was driven by a 2.8 per cent fall in the cost of food and a 16.2 per cent drop in the cost of motor fuels.
Prices for both have either fallen or remained unchanged for nine and 17 months, respectively, and the two groups reduced the CPI 12-month rate by 0.9 per cent alone.
Petrol is now at its lowest price since November 2009 and diesel since February 2010.
Chancellor George Osborne says: “Although the low inflation is, as the Bank of England confirmed last week, driven by lower food and energy prices rather than damaging deflation, we will remain vigilant to all risks, particularly when the global economic situation is so uncertain.”
Treasury chief secretary Danny Alexander adds: “With record employment, strong growth, rising wages and low inflation, Britain has a golden opportunity to enjoy a long and sustained recovery. There is still a lot more to do, but this is solid progress on the road to a stronger and fairer society.”
However, Labour shadow Treasury minister Cathy Jamieson argues that falling values in certain sectors should not mask challenges for UK households.
“Inflation is falling around the world because global oil prices have plummeted. But in Britain wages continue to be sluggish and working people are £1,600 a year worse off under this government,” Jamieson says.
“A few months of falling world oil prices won’t solve the deep-seated problems in our economy. That’s why we need Labour’s better plan to build a more productive economy that will earn our way to higher living standards for all and so get the deficit down too.”
Centre for Economics and Business Research head of UK macroeconomics Scott Corfe says: “Overall, this is good news for the economy. 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 and virtuous, as the declining price of essentials increases household spending power.
“As far as monetary policy is concerned, low inflation is going to lead to even more inaction from the Bank of England. The Cebr now expects the Monetary Policy Committee to keep the base rate of interest on hold until February 2016.”