Britain’s annual inflation rate slowed sharply to zero in February for the first time, pulled down by falling prices for recreational goods, food, furniture and oil, official data showed Tuesday.
“The Consumer Prices Index (CPI) was unchanged in the year to February 2015, that is, a 12-month rate of 0.0 percent, down from 0.3 percent in January,” the Office for National Statistics said in a statement.
“The main contributions to the slowdown in the rate came from price movements for a range of recreational goods (particularly data processing equipment, books and games, toys & hobbies), food, and furniture and furnishings.”
Market expectations had been for a CPI rate of 0.1 percent, according to economists polled by Bloomberg.
Bank of England (BoE) governor Mark Carney recently warned that inflation could soon turn negative, signalling fresh risks to the economy before a general election on May 7.
A sustained period of falling prices can be good for consumers because it means that their wages go further.
However, deflation can also trigger a vicious spiral in which companies and households delay their investments and purchases. In turn, that can throttle demand and spark hefty job cuts.
The surprise scale of February’s fall is likely to push back a BoE interest rate hike, currently pencilled in for 2016, putting downward pressure on the pound.
IHS Global Insight economist Howard Archer described news of zero inflation as “a serious boost for consumer’s purchasing power”.
He added: “The Conservatives (and Liberal Democrats) will be pleased to see flat consumer prices in February as any boost to purchasing power is helpful to their hopes that voters will feel happier with their current situation and more inclined to vote for them in May’s general election.”
Britain’s Conservative-Liberal Democrat coalition government faces the prospect of a closely-fought election on May 7.
In power since 2010, Prime Minister David Cameron’s right-wing Conservative party is currently neck and neck in polls with the main opposition centre-left Labour party ahead of the vote.