UK inflation rate could move into negative as figures set to show prices at 1960s levels

THE UK could return to negative inflation for the first time in more than five decades this morning.

Official figure out today will show if inflation has maintained its downward trend.

The Office for National Statistics will set out the most up to date figures which may see inflation drop below zero for the first time in 55 years.

Bank of England projections suggest the Consumer Price Index measure of inflation fell to minus 0.1 per cent in April, though some economists expect it will remain at zero for the third month in a row.

CPI is at its lowest level since comparable records began in 1989. It was last negative, according to an experimental data series, in March 1960, at minus 0.6 per cent – when Harold Macmillan was Prime Minister and Dwight Eisenhower was US president.

March’s figures showed that, when calculated to two decimal places, inflation was minus 0.01 per cent – turning negative by the smallest of margins.

Last week, the Bank of England said in its quarterly inflation report that it expected inflation to fall below zero before picking up “notably” towards the end of the year as the effect of oil and the ongoing supermarket price war between the big retailers fades.

In a letter to the Chancellor ex- plaining why CPI remains more than one per cent off its two per cent target, Bank governor Mark Carney said he expected to write further such letters in coming months.

But he stressed that a temporary period of falling prices ought not to be mistaken for a damaging spiral of “deflation” – a prospect which might have unwelcome consequences such as households and businesses putting off spending and investment.

Experts say they expect only a short-term and largely symbolic fall.

Samuel Tombs, of consultancy Capital Economics, said: “Deflation is likely to be for one month only. The recent rebound in oil prices and stability of global food prices indicates that the negative contribution to inflation from energy and food prices will fade over the coming months.”

Scotiabank’s Alan Clarke pencilled in inflation at zero for April, with petrol price rises pushing up CPI and Budget changes to alcohol and tobacco “sin taxes” dragging it down – as well as the impact of the timing of Easter on air fares.

Howard Archer, of IHS Global Insight, added: “It is possible that the UK experienced marginal deflation in April, but we believe that this was probably avoided largely due to a strengthening in oil prices taking petrol prices off their recent lows.

“In fact, we believe that the firming in oil prices means that there is now a good chance that the UK will end up dodging deflation.”

Investec economist Philip Shaw predicted inflation at minus 0.2 per cent in April, but also forecast that it would re-enter positive territory in May.