UK inflation falls below zero in April

For the first time since 1960

Britain's inflation rate fell below zero for the first time in more than half a century, as the drop in food and energy prices depressed the cost of living.

Consumer prices declined 0.1 per cent in April from a year earlier, the Office for National Statistics said in London on Tuesday. Economists had forecast the rate to be zero, according to the median of 35 estimates in a Bloomberg News survey. Core inflation slowed to 0.8 per cent, the lowest since 2001.

With inflation so far below the Bank of England's 2 per cent target, policy makers are under little immediate pressure to raise the key interest rate from a record-low 0.5 per cent. Governor Mark Carney said last week that any period of falling prices will be temporary and an expected pickup in inflation at the end of the year means the next move in borrowing costs is likely to be an increase.

NEGATIVE ZONE

• Consumer prices decline 0.1% from a year earlier
   
• Core inflation slows to 0.8%, lowest since 2001
   
• Retail-price inflation holds at 0.9% in April, lowest since November 2009

"For now, it represents an obstruction to a BOE rate hike," said Alan Clarke, an economist at Scotiabank in London. "Enjoy it while it lasts because there is a good chance that inflation will be back in positive territory next month."

The central bank forecast last week that inflation will average 0.6 per cent this year and 1.6 per cent in 2016. It will return to the 2 per cent goal in the second quarter of 2017.

Easter holiday
In April, the consumer-prices index was affected by the timing of the Easter holiday - which fell earlier in April this year than in 2014 - with air and sea fares having the biggest downward contribution to the annual rate. Food prices fell 3 per cent in April from a year earlier, while fuels and lubricants plunged 12.3 per cent.

The 0.1 per cent annual drop in prices is the first since the official data series began in 1996. Based on an historical series constructed by the statistics office, it's the first decline since 1960. Prices rose 0.2 per cent from March.

Retail-price inflation held at 0.9 percent in April, the lowest since November 2009.

The pound was down 0.8 per cent at $1.5530 as of 10:48 am London time. The 10-year gilt yield was at 1.89 per cent, down 6 basis points. Investors pared bets on when the BOE's benchmark rate will rise, ruling out an increase before the second half of 2016, Sonia forward contracts show.

Chancellor of the Exchequer George Osborne described the annual fall in prices as "good news for family budgets" and said it should not be mistaken for "damaging deflation."

"Instead we should welcome the positive effects that lower food and energy prices bring for households at a time when wages are rising strongly, unemployment is falling and the economy is growing," he said in a statement. "Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them should they arise."

Separately, the ONS said producer prices rose 0.1 per cent in April from March and were down 1.7 per cent from a year ago. Input prices fell an annual 11.7 per cent, led by crude oil.

House-price growth accelerated to an annual 9.6 per cent in March from 7.4 per cent in February, a separate report Tuesday showed. Values in London rose 11.2 per cent from a year earlier.