March 24, 2015 / 9:32 AM / 3 years ago

Britain sees no inflation in February for first time on record

LONDON (Reuters) - British inflation vanished last month, hitting zero for the first time on record, official figures showed on Tuesday.

The annual rate of consumer price inflation dropped to zero percent, from 0.3 percent in January, the Office for National Statistics said, keeping a rate rise by the Bank of England firmly off the table for now.

The decline was bigger than economists had expected and marked the first time there has been no growth in consumer prices since comparable records began in 1989.

Sterling GBP= weakened slightly against the dollar after the data and economists said that inflation was likely to dip below zero next month -- though they stressed that Britain was at much less risk of entrenched deflation than the euro zone.

“We still think that deflation in the UK will be a ‘good’ development, giving household incomes a welcome boost and supporting the economic recovery this year,” said Vicky Redwood, chief UK economist at Capital Economics.

The unchanged cost of living will be appreciated by many Britons in the run-up to a national election on May 7, especially as annual wage growth slipped to 1.8 percent at the start of the year.

But the further inflation falls below the Bank of England’s 2 percent target, the more speculation there is likely to be on whether low price growth risks becoming entrenched.

A woman pays a market trader for goods in Soho's Berwick Street Market in central London May 17, 2011. REUTERS/Paul Hackett

Last week the BoE’s chief economist said the central bank was as likely to need to cut rates as to raise them in the immediate future, though for now that view appears not to be shared by other policymakers.

BoE Governor Mark Carney told legislators earlier this month that cutting rates purely in response to falling oil prices would be “extremely foolish”, and most economists polled by Reuters expect the next BoE move to be a rate rise in around a year’s time.

    Unlike in the euro zone, where prices are already showing year-on-year falls, most economists think British consumer demand will remain firm in the face of falling prices, due to robust employment growth and signs of a pick-up in wages.

    Tuesday’s data showed downward pressure on inflation from falling prices for food, laptops, tablets and computer peripherals, whereas in previous months tumbling oil prices have reduced the cost of fuel and transport.

    Cuts in utility bills from companies such as British Gas (CNA.L) are among the factors likely to push prices lower in March, economists said.

    An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, slowed to 1.2 percent in February compared with 1.4 percent in January.

    Data also released by the ONS on Tuesday showed that the prices which factories charged for goods fell by 1.8 percent in annual terms, similar to economists’ predictions. But factories’ raw material costs edged up slightly on the month, as oil prices recovered from lows hit at the start of the year.

    Editing by Susan Fenton

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