Inflation holds at a record low of zero

Disposable incomes have received a boost as inflation rates remain at a record low of 0.0 per cent…

Inflation, which is measured by the consumer prices index, held at zero in March, remaining unchanged from February. The data from the Office for National Statistics (ONS) showed current inflation is at the lowest level since comparable records began in 1989, but estimates from the ONS suggested it was the lowest reading since 1960.

While Chancellor George Osborne was keen to laud this as a sign of economic success, critics of the coalition have argued such a low inflation rate is a sign of weakness.

The biggest downward effect on the cost of living came from falls in clothing and gas prices. The ONS said between February and March was the first time clothing and footwear prices had fallen since the consumer price index was introduced.

Chief UK Economist at Capital Economics Vicky Redwood said: “The UK just avoided deflation in March, but inflation could yet dip into negative territory at some point in the coming months.

“The indirect impact of lower energy prices will take a while to come through and so the core rate could drop further in the coming months, tipping the headline rate below zero.

“Even if the UK does narrowly avoid deflation, inflation is still likely to hover close to zero for most of 2015.”

Low inflation will, the British Chamber of Commerce said, support recovery, but in a bid to sustain business confidence the Bank of England should commit to keep interest rates on hold until at least early 2016.

David Kern, chief economist at business lobby group, said: “Continued low inflation is good news for the economy, particularly at a time when wage increases are modest and businesses are facing challenges.

“If deflation is to emerge it should be short-term because of the strength of the UK’s largest sector, the service sector, where inflation remains above 2 per cent.”

However, trade union group TUC said the latest figures were evidence of poor economic recovery. General Secretary Frances O’Grady said: “Zero inflation is a mark of the weak condition the economy has been left in by a failed economic plan.

“Stagnating prices are not a sound foundation for the strong and sustained pay rises that workers have been waiting years for.”

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