Shoppers are reflected in a window as they carry bags along Oxford Street in this file photo.LUKE MACGREGOR/Reuters
Britain's inflation rate fell more than economists forecast in January, dropping to record low as food and fuel prices plunged.
Consumer-price growth slowed to 0.3 from 0.5 per cent in December, the lowest since the data series began in 1989, the Office for National Statistics said on Tuesday. Based on a statistics office model, it's the weakest since March 1960, when prices fell 0.6 per cent. Economists had forecast a 0.4 per cent rate in January.
The Bank of England cut its near-term inflation projections last week to reflect the drop in oil prices, and Governor Mark Carney said the rate could fall below zero in the coming months. The forecasts also show inflation rebounding starting at the end of this year and gradually rising above the bank's 2 per cent goal, setting the stage for an increase in interest rates by the Monetary Policy Committee.
The extent to which the MPC can "look through" record-low inflation and consider raising interest rates this year will now "depend on just how much U.K. wage growth picks up as 2015 progresses and whether inflation expectations weaken markedly," said IHS economist Howard Archer.
The median forecast of economists in a Bloomberg survey is for a quarter-point rate hike in the fourth quarter of this year.
The report showed that prices fell 0.9 per cent in January from December. Food and non-alcoholic beverages plunged an annual 2.5 per cent, while fuels and lubricants dropped 16.2 per cent. Both were the biggest declines since detailed records began in 1997.
The pound was little changed after the data were published, and traded at $1.5377 at 10:10 a.m. London time. Gilts fell, with the 10-year yield rising 2 basis points to 1.71 per cent.
The BOE's projections show inflation averaging 0.12 per cent this quarter and 0.03 per cent from April to June. With wage growth picking up, that's helping to boost workers' real incomes.
The last time the U.K. saw prices fall on average over a full year was during the Great Depression, according to a constructed historical series on the BOE's website. Carney has said a negative inflation rate will be "temporary" and the U.K. won't experience deflation. "Enjoy it while it lasts," was the governor's message to consumers last week.
In addition to weaker energy prices, U.K. inflation is also being dragged lower by declining food costs amid a supermarket price war. William Morrison Supermarkets Plc on Monday became the latest grocer to announce price cuts.
The rate of price growth based on the retail-price index fell to 1.1 per cent last month, the lowest since 2009, according to the statistics office.
In a separate release, the ONS said input prices at factories dropped 3.7 per cent in January from December and fell 14.2 per cent compared with a year earlier. Output prices fell an annual 1.8 per cent, the most on record.
The ONS also published its latest house-price data, showing values increased 9.8 per cent in December from a year earlier. In London, prices were up 13.3 per cent.