UK Consumer Prices Index Inflation went down to 0.3% in January 2015, the lowest rate it has been at since the Office for National Statistics began gathering the data in 1989. This means it has fallen by 0.2% since December of last year. The figures are concomitant with the Bank of England forecasting that the UK is heading for deflation in the spring.
The ONS have revealed that lower prices for petrol and also food, partly the result of a supermarket price war, are the significant factors causing the reduction. From January 2014 to January of this year, the cost of petrol has dropped 16.2% whilst food prices are 2.5% lower. Furthermore, clothing prices plummeted 3.7% from December 2014 to January last month, yet the reduction between these months was even bigger a year before.
The governor of the Bank of England, Mark Carney, has said that low inflation was being driven by the worldwide drop in the price of oil and such inflation would be “unambiguously good” for Britain’s economy. He went on to suggest that deflation could occur in the next few months as a result energy providers further reducing their tariffs that in turn will drive prices down even more. However, the Bank of England does not expect deflation to last nor do they see any signs of “bad” deflation.
Howard Archer from HIS Global Insight where he operates as the chief UK and European economist commented on the recent release, stating that it was “excellent news for the consumer’s purchasing power. With inflation likely to fall further and earnings growth now finally trending upwards, consumers should see appreciable improvement in their purchasing power as 2015 progresses.”
It is necessary to note that core inflation actually rose 0.1% from the previous month to 1.4% in January 2015. Mr. Archer argued that this is a sign that the UK is “far from suffering generalised deflation.”
All the main political parties have commented on the news in an attempt to disseminate distinctive narratives about the economy in the lead up to the general election.
The Chancellor of the Exchequer, George Osborne, stated: “Today we see the lowest CPI inflation ever- a milestone for the British economy. It’s great news for families, whose budgets will stretch even further. It shows that those who went around predicting a cost of living crisis were plain wrong.”
He went on to argue: “It demonstrates the clear choice between a long-term economic plan that’s delivering stability and rising living standards, and the chaos of the alternatives. Although the low inflation is, as the Bank of England confirmed last week, driven by lower food and energy prices rather than damaging deflation, we will remain vigilant to all risks, particularly when the global economic situation is so uncertain.”
The Liberal Democrats have echoed the positivity of these statements. The MP Danny Alexander stated: “These figures…go alongside the UK having the best economic growth in Europe, one of the best economic growth rates in the world, job creation off the back of very hard work by millions of people and businesses around this country, and low inflation, and that is a good mix for the country right now.”
However, Labour sought to present the news as the simple result of global oil price reduction. Cathy Jamieson, the shadow Treasury minister, stated: “Inflation is falling around the world because global oil prices have plummeted. But in Britain, wages continue to be sluggish and work people are £1,600 a year worse off under this government.”
The data on Britain’s Consumer Prices Index are just one set of figures among a series this week, including statistics on average earnings, employment and public finances. This data will act as key economic indicators and thus play a significant role in the lead up to the general election.