LONDON: Britain is sliding towards its first bout of negative inflation in 55 years, the Bank of England said, but strong economic growth should stave off the threat of a deflationary spiral.
The slump in oil prices and falling food prices is likely to push inflation to zero in the second and third quarters of 2015, probably dipping into negative territory for one or two months this spring, the Bank said in its February inflation report.
But the Bank also revised up its forecasts for growth in 2016 and 2017, helping push sterling to a seven-year high against the euro, with one euro worth 73.71p. The pound also rose 1% against the dollar to $1.5388 as investors bet on a rate hike coming sooner than expected, later this year or in early 2016.
UK inflation was 0.5% in December, well below the Bank’s 2% target. Speaking as it published its latest quarterly inflation report, the Bank’s governor, Mark Carney, said: “It will likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year.”
