Inflation expectations slide to 13-year low

Jessica Morris
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Inflation fell to 0.3 per cent in January (Source: Getty)

Britain's expectations for inflation over the next 12 months have fallen to a level not seen in 13 years.

The Bank of England's survey showed people's inflation expectations for the year ahead slumped to 1.9 per cent, down from 2.5 per cent in November, or the lowest since 2002.

"While inflation expectations have softened appreciably further and are now very low compared to normal levels they are not hugely weak and there is crucially no evidence that deflation - let alone prolonged, meaningful deflation - is considered a possibility," Howard Archer, Chief UK & European Economist at IHS Global Insight, said.

"Significantly, inflation is expected to remain clearly positive on a one-year, two-year and five-year horizon, and to move back up, which suggests that there is currently little risk in the UK of consumers delaying purchases in expectation that prices will fall."

In January, UK inflation fell to its lowest level since the current measure of inflation began in 1989, slumping to 0.3 per cent amid plunging oil prices and a supermarket price war.

Threadneedle Street held its main interest rate at a record low of 0.5 per cent for the 72nd month yesterday, marking six years of ultra-loose monetary policy.

Minutes from the Monetary Policy Committee's meeting in February showed plunging inflation persuaded all nine members voted to keep rates on hold. And in February's inflation report, Bank of England governor Mark Carney warned UK inflation would "more likely than not" slip into negative territory this spring.

The Bank of England's survey also showed the percentage of Britons expecting interest rates to rise in the next 12 months fell to 36 per cent, from 37 per cent in November.

However, the proportion of people expecting a rate cut doubled to eight per cent - the highest since August 2012.

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