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 The annual rate of consumer price inflation dropped to zero percent,
from 0.3 percent in January, the Office for National Statistics
said, keeping a rate rise by the Bank of England firmly off the
table for now.
The decline was bigger than economists had expected and marked the
first time there has been no growth in consumer prices since
comparable records began in 1989.
Sterling <GBP=> weakened slightly against the dollar after the data
and economists said that inflation was likely to dip below zero next
month -- though they stressed that Britain was at much less risk of
entrenched deflation than the euro zone.
"We still think that deflation in the UK will be a 'good'
development, giving household incomes a welcome boost and supporting
the economic recovery this year," said Vicky Redwood, chief UK
economist at Capital Economics.
The unchanged cost of living will be appreciated by many Britons in
the run-up to a national election on May 7, especially as annual
wage growth slipped to 1.8 percent at the start of the year.
But the further inflation falls below the Bank of England's 2
percent target, the more speculation there is likely to be on
whether low price growth risks becoming entrenched.
Last week the BoE's chief economist said the central bank was as
likely to need to cut rates as to raise them in the immediate
future, though for now that view appears not to be shared by other
policymakers.
BoE Governor Mark Carney told legislators earlier this month that
cutting rates purely in response to falling oil prices would be
"extremely foolish", and most economists polled by Reuters expect
the next BoE move to be a rate rise in around a year's time.
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Unlike in the euro zone, where prices are already showing
year-on-year falls, most economists think British consumer demand
will remain firm in the face of falling prices, due to robust
employment growth and signs of a pick-up in wages.
Tuesday's data showed downward pressure on inflation from falling
prices for food, laptops, tablets and computer peripherals, whereas
in previous months tumbling oil prices have reduced the cost of fuel
and transport.
Cuts in utility bills from companies such as British Gas are among
the factors likely to push prices lower in March, economists said.
An underlying measure of inflation, which strips out increases in
energy, food, alcohol and tobacco, slowed to 1.2 percent in February
compared with 1.4 percent in January.
Data also released by the ONS on Tuesday showed that the prices
which factories charged for goods fell by 1.8 percent in annual
terms, similar to economists' predictions. But factories' raw
material costs edged up slightly on the month, as oil prices
recovered from lows hit at the start of the year.
(Editing by Susan Fenton)
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