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UK slips into 0.1pc deflation

This is the first time the Consumer Price Index has seen a yearly fall since records began in 1996 – and the first time since 1960 based on historical estimates.

The ONS attributed the downturn to falling air and sea fares. The early timing of Easter on 5 April compared to 20 April last year was another factor, as the ONS collects the data in the middle of the month, meaning the CPI Index was boosted by the timing of the holiday last year but not this year.

But few commentators expected the downturn to continue for long.

Samuel Tombs, senior UK economist at Capital Economics, said: “CPI inflation should return to positive territory in May, as the effect of the shifting timing of Easter ceases to depress it and as the negative contribution from energy and food prices starts to fade.

“Meanwhile, 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.

“Nonetheless, the pound’s recent appreciation and the scope for productivity to recover suggests that it could still be another couple of years before CPI inflation returns to the 2% target.”

Richard Pike, sales and marketing director of Phoebus software, said: “I don’t think we are entering a Japan “lost decade” scenario and I would expect to see inflation increase again moving forward.

“With wages now back above inflation at around 2%, consumers should continue to spend and this will only be good for the economy.”

The government’s inflation target currently stands at 2%.

Henry Dixon, fund manager at Man GLG, warned that falling oil prices are skewing the CPI, which could subsequently rocket later in the year.

He said: “I am always concerned when something has been written off, and inflation is definitely in that camp currently.

“In my view, when some of the short-term factors such as the fall in the oil price come out of the equation, it could overshoot the official target and climb back up near to 3% by January.”


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