As you’ll probably have seen filling your TV screens and covering your newspapers, the UK inflation rates fell to 0% in February which is the lowest rate of CPI inflation since 1988. A large contributor to the 0.3% cut from January to February this year was the decline in food, energy and oil prices as well as lower costs given to computer products. This is good news for us as consumers because it means that we can spend our money elsewhere and will feel that bit richer at the end of every month when we look at our family budget. Naturally, with this in mind, it will also give the Chancellor a pre-election advantage. However the outcomes of our overall economic activity won’t look too promising if consumers defer purchasing everyday goods, hoping that prices will continue to drop, until a later date. According to the BBC’s Economic Editor Robert Peston, the latter would actually ‘depress economic activity’. Another factor we also have to think about is that those that are in debt will have to pay more, in real terms if deflation continues.
Yesterday the BBC declared that the February figure was a greater drop than what was expected and that the cost of living in the UK in February this year was the same as the year before. A 0.1% drop was what analysts had actually predicted the UK to face.
It is likely that March’s inflation rates will turn negative, as this will be the first time that the lowering of gas prices by British Gas will revealed in the inflation figures, but we shall have to wait and see.
Have a good day
Baker Watkin LLP