First UK deflation since 1960

21-04-2009

First UK deflation since 1960
The UK experienced deflation last month for the first time in nearly half a century, according to figures released by the Office of National Statistics (ONS) today.

The Retail Price Index (RPI) fell by 0.4 per cent in March, with a negative value not recorded since March 1960.

The key factors in the fall were the reduction in mortgage payments following the Bank of England's interest rates cuts, lower household bills as energy prices fell and cheaper shopping bills thanks to European imports picking up. Reductions in air fares also contributed to the fall.

The Consumer Prices Index (CPI), which the Bank of England's monetary policy committee uses to set inflation targets, fell to 2.9 per cent after February's surprising rise to 3.2 per cent.

Short term deflation is seen as a positive stimulant for a struggling economy, encouraging people to spend more money but longer term it can have catastrophic effects in eroding consumer confidence.

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