UK Inflation Rate drops to Zero for First Time on Record

Britain’s inflation rate dropped to zero in February, the first ever stagnation in prices since the data series began almost three decades ago.

The slowdown in inflation from 0.3 percent in January was sharper than economists had forecast and marked the first zero reading since 1989. Based on constructed historical data, it’s the weakest since 1960, the Office for National Statistics said on Tuesday.

The largest downward effect to the annual rate in February came from food and non-alcoholic drinks as well as furniture and household equipment and computer equipment. Food and drink prices plunged a record annual 3.3 percent. There was a slight downward effect from gasoline prices, which fell to an average 107 pence per liter last month from 108.3 pence in January.

Bank of England Governor Mark Carney forecasts that the inflation rate will drop below zero in the coming months, though policy makers have said they’ll look through the slump as it’s driven by temporary factors, particularly a slump in oil. Weak price growth means there’s little pressure on the BOE to raise its key interest rate from a record-low 0.5 percent.

Carney has also said the effect of lower oil costs will start to fade later this year and inflation will accelerate in 2016. Nevertheless, BOE Chief Economist Andy Haldane has warned of a risk that low price growth will persist, pointing to a key division on the Monetary Policy Committee as officials debate when to begin raising interest rates.

Core Inflation

Economists had forecast that inflation would slow to 0.1 percent in February, based on the median estimate in a Bloomberg survey. From the previous month, prices rose 0.3 percent.

Core inflation slowed to 1.2 percent last month, the lowest since November and below the 1.3 percent forecast by economists. Separately, the ONS said U.K. house-price growth cooled to 8.4 percent in January — the lowest since March — from 9.8 percent in December. London home values increased an annual 13 percent.

Input prices at factories fell 13.5 percent in February from a year earlier, reflecting the slump in crude oil. Output prices rose 0.2 percent on the month and were down an annual 1.8 percent.

Source: Bloomberg

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