Inflation in the UK could fall from its 0.5% rate and ‘potentially turn negative in the spring’, according to the governor of the Bank of England.
In the inflation report released today by England’s central bank, governor Mark Carney said the inflation rate could be close to zero for the remainder of the year.
Carney wrote: "As a consequence, I have written the first open letter from a Governor to the Chancellor explaining why inflation is so low and what [we are] going to do about it. And I will likely write a few more before the year is out."
Carney blamed low oil prices, subdued generalised inflationary pressures, long periods of previous unemployment against low wage growth, a "degree of slack in the economy" judged at 0.5% and an 18 to 24 month waiting period for policy to take effect.
But Carney said a dip into deflation would not be long term, and would not affect the core of the UK economy.
"As demonstrated by the recent Bank of England stress tests, the core of our financial system is increasingly resilient and functioning well," said Carney.
"Access to credit continues to improve and many borrowing rates are at or near historical lows."