Inflation in UK falls to 70-year low

LONDON - The recession has pushed inflation to its lowest level since before World War II. Prices fell by 1.2 per cent in the year to March, compared with a drop of 0.4 per cent in April, the retail prices index showed. The latest figure is the lowest since June 1939.

Much of the evaporation of inflation - and the apparent onset of deflation - was due to the huge reduction in mortgage repayments after the Bank of England slashed interest rates from more than 5 per cent to 0.5 per cent.

However, the consumer prices index (CPI), which excludes such effects, also came down significantly. Helped lower by falling gas and electricity bills, the CPI registered a 2.3 per cent rise in prices in the year to March, against a 2.9 per cent increase in February.

So-called "core inflation", which strips out volatile items from the index such as energy prices and food, also showed a downward trend, from 1.7 per cent to 1.5 per cent - indicating that underlying inflationary forces in the economy are easing rapidly.

The question is whether the run of falling prices will remain a relatively benign trend, boosting living standards for those in work, or whether it heralds a much less pleasant era of perpetually falling prices, depressed demand and stagnant output - as was seen in Japan over the past two decades or throughout much of the West in the 1930s.

Most economists agree that inflation will not turn to pernicious deflation, not least because the weak pound is pushing up import costs.

Economists agreed that weak inflation figures would prompt the Bank of England to press on with its programme of quantitative easing.

- INDEPENDENT