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Britain sinks into deepest deflation since 1948
The British economy sank deeper into deflation last month to the lowest level in more than 60 years as the effect of falling house prices and lower mortgage repayments escalated.
Inflation on the Retail Prices Index (RPI) measure, which includes housing costs, dropped sharply to -1.2pc in the year to April, from -0.4pc in March, the Office for National Statistics (ONS) said on Tuesday.
It was the lowest RPI figure since records began in 1948, and weaker than economists had expected.
Jonathan Loynes at Capital Economics said the inflation figures served as a reminder that "excessively low inflation, or deflation, is still a bigger risk over the next few years than a rapid rise in inflation."
The main driver of the fall was lower mortgage interest payments following the Bank of England's decision to cut interest rates by half a percentage point to 0.5pc in March, the ONS said.
Other contributing factors were falling house prices and rental costs, lower council tax costs, lower gas and electricity bills and falling food prices.
Housing-related costs fell by a total of 12.1pc in the year to April.
Although in the short term falling prices will appeal to consumers, RPI is used to calculate wage increases so the sharp fall in April is likely to add to downward pressure on salaries already caused by higher unemployment and falling corporate profits.
"As a result, many workers are likely to wage freezes or even pay cuts," said Howard Archer, chief UK economist at IHS Global Insight.
Deflation poses a further threat to the economy if people expect prices to fall further and put purchasing plans on hold which can, if the trend persists, lead to lower output and even more job losses.
The Consumer Prices Index (CPI), which excludes housing costs and is the Government's preferred measure of inflation, fell to 2.3pc in April from 2.9pc in March. The number fell back mainly because of lower utility bills and food prices.
Although CPI is now close to the 2pc target, it is expected to fall to below 2pc in the coming months as oil prices remain relatively low, utility and food bills fall further, and retailers reduce prices to attract customers. Once it falls below target the Bank of England expects it to remain there over the next three years, it indicated last week.
"It looks as if the disinflationary impact of the recession has started to overwhelm the inflationary impact of the weaker currency," Credit Suisse analysts said.
http://www.telegraph.co.uk/finance/f...ince-1948.html
The British economy sank deeper into deflation last month to the lowest level in more than 60 years as the effect of falling house prices and lower mortgage repayments escalated.
Inflation on the Retail Prices Index (RPI) measure, which includes housing costs, dropped sharply to -1.2pc in the year to April, from -0.4pc in March, the Office for National Statistics (ONS) said on Tuesday.
It was the lowest RPI figure since records began in 1948, and weaker than economists had expected.
Jonathan Loynes at Capital Economics said the inflation figures served as a reminder that "excessively low inflation, or deflation, is still a bigger risk over the next few years than a rapid rise in inflation."
The main driver of the fall was lower mortgage interest payments following the Bank of England's decision to cut interest rates by half a percentage point to 0.5pc in March, the ONS said.
Other contributing factors were falling house prices and rental costs, lower council tax costs, lower gas and electricity bills and falling food prices.
Housing-related costs fell by a total of 12.1pc in the year to April.
Although in the short term falling prices will appeal to consumers, RPI is used to calculate wage increases so the sharp fall in April is likely to add to downward pressure on salaries already caused by higher unemployment and falling corporate profits.
"As a result, many workers are likely to wage freezes or even pay cuts," said Howard Archer, chief UK economist at IHS Global Insight.
Deflation poses a further threat to the economy if people expect prices to fall further and put purchasing plans on hold which can, if the trend persists, lead to lower output and even more job losses.
The Consumer Prices Index (CPI), which excludes housing costs and is the Government's preferred measure of inflation, fell to 2.3pc in April from 2.9pc in March. The number fell back mainly because of lower utility bills and food prices.
Although CPI is now close to the 2pc target, it is expected to fall to below 2pc in the coming months as oil prices remain relatively low, utility and food bills fall further, and retailers reduce prices to attract customers. Once it falls below target the Bank of England expects it to remain there over the next three years, it indicated last week.
"It looks as if the disinflationary impact of the recession has started to overwhelm the inflationary impact of the weaker currency," Credit Suisse analysts said.
http://www.telegraph.co.uk/finance/f...ince-1948.html
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