UK inflation reaches record low of 0.3%

Drop in petrol prices and supermarket price war push inflation to slowest pace since records began in 1989

UK inflation fell to the lowest level on record in January as the sharp drop in global oil prices fed through to petrol pumps and food prices continued to fall amid a supermarket price war.

The government's preferred measure of inflation fell to 0.3% in January from 0.5% in December, the slowest pace since equivalent records began for the consumer prices index in 1989.

Whilst only Eon's cut to gas prices came into effect in January, the other utility companies' price cuts should feed through between now and April. In addition, although we have probably seen the full impact of lower oil prices on petrol prices, we have almost certainly not seen the full effect trickle down to other goods. Accordingly, we still think that the UK will experience a brief period of deflation around March or April this year.

With little sign that low inflation is becoming entrenched, though, the UK's period of deflation should be of the "good" sort.