The rate of inflation in the UK fell to its lowest ever rate of 0.3% in January, according to figures released by the Office of National Statistics (ONS) this week.
The Consumer Prices Index (CPI), the cost of living including petrol and food, fell further at the turn of the year, sparking fears of a period of depression.
CPI fell to an alarming 0.5% in December, however helped by supermarket price wars, this figure fell to its historical low last month.
“The Bank of England has suggested a period of negative inflation, or deflation, is a distinct possibility later in the year” said Taj Kang, Business Development Director at specialist broker Contractor Mortgages Made Easy.
“Governor Mark Carney warned in the Bank’s inflation report last week that CPI could turn negative, probably in the spring, and confirmation of the figure for January appears to back this up.”
“Tumbling oil prices and a sudden drop in energy prices are the factors that Mr Carney points out as a reason for this. It has also however been revealed by the ONS this week that unemployment has fallen sharply as well, down nearly 100,000 in the last quarter of 2014.”
“This, combined with earnings increasing by 1.7%, shows potentially a very positive outlook for the UK economy, particularly in the short term ahead of the general election in May.”
Whilst a period of uncertainty has been predicted for a long time ahead of May’s election, recent news concerning inflation has dampened fears of significant changes should there be a new government.
With the pound increasing in strength against other currencies continually – even touching a 7-year high against the Euro this week – and wage, along with unemployment, figures continuing in the right direction; the outlook appears brighter than previously feared.
“For the most part, to the average consumer, this comes as good news” added Kang. “UK wage growth far outstripped inflation in December, and this looks set to continue for the foreseeable future with government predictions of deflation.”
“Along with unemployment figures falling to 5.7%, its lowest level for over six years, it appears that ‘the man in the street’ is in a good financial position at present, with rates – particularly on borrowing – staying low.”
“The danger however is a sustained period of negative inflation later in the year, as this will force the hand of the Bank of England when it comes to interest rates. That, in turn, could wipe out the positives around wages and employment in one fell swoop.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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