LONDON: The UK has officially slipped into deflation for the first time in more than half a century, but economists and policy makers are not concerned, saying that a brief period of gently falling prices is more likely to help growth than harm it.
The UK has been teetering on the brink of deflation for several months because of the slide in global oil prices, a supermarket price war and the strength of sterling, which has reduced the cost of imports.
What finally tipped the balance was a fall in air and sea fares, most likely connected to the later timing of Easter this year, the Office for National Statistics said.
Prices fell by 0.1 per cent in the year to April, a new record monthly low for the consumer price index created in 1996. The best comparable data suggests that this is the lowest UK inflation reading since early 1960.
Suneil Mahindru, chief investment officer international equity at Goldman Sachs Asset Management, reacted by saying: “We are not concerned about the UK”. Falling prices are “freeing disposable income and many industries, such as retail, are benefiting”, he added.
UK households have suffered from falling real wages over the past few years. Now that prices of consumer essentials like food and energy are stagnant or falling, many households are finally getting a boost in living standards.
Chancellor George Osborne said the data were good news for family budgets and should not be mistaken for “damaging deflation” — a vicious cycle of falling prices and wages which shrinks an economy.
