Inflation in January falls to its lowest level on record amid low oil prices and fierce supermarket competition – and is expected to slide further in coming months.
Figures from the Office for National Statistics show the consumer prices index (CPI) dropped to 0.3 per cent in January from 0.5 per cent in December, its lowest levels since records began in 1989.
It means a basket of goods and services that cost £100 in January last year would have been just 30p more last month.
The Bank of England expects inflation will turn negative for the first time in five decades during the next few months before recovering later in 2015.
Chancellor George Osborne hailed it as a “milestone for the British economy” and used the figure to taunt Labour that its “cost of living crisis” rhetoric was “plain wrong”.
Today we see lowest CPI inflation ever. This is a milestone for the British economy &good news for families with budgets stretching further
— George Osborne (@George_Osborne) February 17, 2015
Choice now is between our #LongTermEconomicPlan that’s delivering rising living standards & the chaos of the alternatives
— George Osborne (@George_Osborne) February 17, 2015
Today’s low #inflation means security for hardworking taxpayers & their families. Let’s stick to the plan that’s raising living standards.
— David Cameron (@David_Cameron) February 17, 2015
The Bank of England had already said it expected inflation to fall below 1 per cent and remain there for months to come.
The fall was driven by lower oil prices and household energy bills remaining flat compared with December 2013, when they rose sharply.
Officials want to avoid a downward spiral of falling prices, with consumers putting off spending and firms delaying investment.
The latest inflation figures come during an important week for economic data, with employment and wage numbers out tomorrow and public sector finance figures – giving a key update on efforts to bring down the deficit – on Friday.
But TUC general secretary Frances O’Grady said: “Low inflation is a sign of fragility in both the UK and global economy.”
Shadow Treasury minister Cathy Jamieson said: “Wages continue to be sluggish and working people are £1,600 a year worse off under this government. A few months of falling world oil prices won’t solve the deep-seated problems in our economy.”