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UK economy slips into deflation

19 May 2015

UK inflation fell to -0.1% in April, the latest figures from the Office for National Statistics (ONS) have revealed.

CPI inflation dropped by 0.1% in the year to April 2015, representing the first instance of negative inflation since 1960, based on comparable historic estimates.

The ONS reported that the largest downward contribution came from transport services, particularly air and sea fares.

The news follows a recent warning from the Bank of England (BoE) that the UK could experience a period of deflation. However, the BoE was keen to emphasise that deflation was only like to last for a ‘temporary’ period.

Responding to the news, Chancellor George Osborne asserted: ‘We should not mistake this for damaging deflation’, although he added: ‘Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them should they arise’.

The Institute of Directors (IoD) echoed these sentiments. James Sproule, IoD Chief Economist, said: The slip into deflation should not worry us, as it is primarily caused by a drop in the cost of energy, which is good news for households and businesses’.