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UK inflation hits historic low

Tuesday, March 24, 2015 - 02:15

UK inflation is at it's lowest recorded rate for decades, thanks to falling food and fuel prices. But as Katie Gregory reports, despite deflation on the horizon it's not a bleak outlook for the economy.

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The last time UK inflation was this low - you could buy a loaf of bread for 5 pence, now you'll spend well over a pound. At 0% it's the lowest figure since records began...unofficial estimates indicate it was last around that mark back in 1960. And it's putting a big smile on Finance Minister George Osborne's face. (SOUNDBITE) (English) UK FINANCE MINISTER, GEORGE OSBORNE, SAYING; "Frozen prices are a first for the British economy and this zero inflation is driven by falling petrol prices and food prices, so it's good news for families." Food prices fell 3.4% in the year to February. The cost of fuel - down 16.6%, thanks to plummeting world oil prices. And the savings are being felt by some. (SOUNDBITE) (English) BUSINESS OWNER, NISHA, SAYING; "On petrol prices, I am probably saving about £30 to £40 a week." (SOUNDBITE) (English) LONDON RESIDENT, IMOGEN, SAYING; "It's interesting watching supermarket prices drop a bit on exactly the same product, in exactly the same supermarket." (SOUNDBITE) (English) BUSINESS OWNER, NISHMA, SAYING; "We run our own business, so cost of buying in our produce. The cost of ... I guess your day to day costs, you definitely notice the fall." (SOUNBITE) (English) REUTERS REPORTER, KATIE GREGORY, SAYING; "It's just under 7 weeks until the UK election - and Prime Minister David Cameron is spinning zero inflation as a good thing for family budgets - he says it's a sign his government's long term plan is working. But, zero is a long way from the Bank of England's target rate of 2 percent." This all means an interest rate rise is firmly off the table for now. But economists are predicting the UK will slip into deflation in the coming months. Kerry Craig is from JP Morgan. (SOUNDBITE) (English) JP MORGAN, GLOBAL MARKET STRATEGIST, KERRY CRAIG, SAYING; "Inflation may actually fall lower than zero, we may see a negative number printed this year but again it's about those transitory factors of the oil price. The Bank of England will start talking more about what they think inflation will do. If we see those growth forecasts for the UK economy this year be delivered, then you'll ultimately see the Bank of England look to raise rates nearer the end of this year." With signs pointing towards a pick up in wages - and employment growth in the UK - demand's likely to remain robust. So even if the country does slide into the negative - it may not necessarily be the stale picture of deflation that has damaged others in Europe.

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UK inflation hits historic low

Tuesday, March 24, 2015 - 02:15