The pound fell against the dollar to $1.52 this morning, after official data showed UK inflation turned negative for the first time in five months.
The consumer price index slipped to -0.1 per cent in the year to September, missing economists' expectations for it to hold at zero. This marks the second time it's dipped into negative territory since 1960, according to experimental data.
The fall was due to a smaller than usual rise in clothing prices and falling motor fuel prices, the ONS said.
Core inflation, which strips out more volatile sectors such as food and energy prices, stayed at one per cent. This also came in below economists' forecasts for a 1.1 per cent rise.
The Old Lady recently revised its forecast for when inflation will hit one per cent to Spring, rather than the turn of this year. They said that rising wages are yet to apply significant upward pressure to prices.
Low inflation has been a boon to consumers who've experienced greater gains in real wages as price growth teeters around zero. Separate data due out tomorrow is expected to show wages grew by annual 3.1 per cent in the three months to August.
Economists said that today's inflation data gives the BoE room to keep interest rates at the record low 0.5 per cent for longer. While economists expect borrowing costs could start rising towards the middle of next year, markets are pointing to a later date.
"Deflation of 0.1 per cent in September will undoubtedly fuel market expectations that the BoE will not be raising interest rates before the latter months of 2016, and could very well hold fire until 2017," Howard Archer,chief economist at IHS, said.
Matthew Ryan, strategy analyst at Ebury, added: "This will not be good news for BoE hawks, and provides a further indication that rates in the UK are unlikely to rise until the second quarter of next year at the very earliest."