UK: Inflation to Fall to Lowest in Nearly 50 Years

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Source: Telegraph UK

Inflation to fall to lowest in nearly 50 years

Inflation is expected to show a sharp fall today as recession pressures continue to mount.

Last Updated: 8:37AM GMT 17 Feb 2009

Experts predict that Retail Prices Index (RPI) inflation, which includes housing and mortgage related costs, may fall into negative territory for the first time in nearly 49 years, further stoking fears over deflation.

Steep discounts on the high street and a drag on firms' pricing power is set to push the Consumer Prices Index (CPI) measure of inflation from 3.1 per cent to around 2.7 per cent in January, although one leading economist is looking for a fall to 2.4 per cent.

Last week's grim quarterly forecast from the Bank showed the UK only narrowly avoiding negative CPI over the next two years. The Bank's February report forecast CPI to reach as low as 0.5 per cent this year and remain well below target until 2012, even with interest rates cut further from their already historic low of 1 per cent.

Mervyn King, Governor of the Bank, suggested the Monetary Policy Committee (MPC) would imminently resort to other tools to ward off deflation as rate cuts lose their impact. It is now thought that the MPC will move forward with a quantitative easing programme - where the supply of money is increased - as early as March when it next decides on rates.

Read more: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4677182/Inflation-to-fall-to-lowest-in-nearly-50-years.html