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After spending several months hovering on the edge, the UK finally slipped into deflation for the first time since March 1960 during April. Consumer Price Index inflation dropped at an annualised rate of -0.1% in April, according to the Office for National Statistics, pulled down by lower transport costs, a steep fall in the price of oil, the strength of sterling and intense competition among food retailers.
The Bank of England had anticipated this in the short term and inflation is expected to rebound towards the end of the year. Governor Mark Carney has stressed that “a temporary period of falling prices should not be mistaken for the potentially damaging process of widespread and persistent deflation”, and the Bank of England expects inflation to reach its government-set target of 2% within the next two years.
These changes in inflation highlight the importance of agreeing a sensible inflation rate with our clients to use for long term projections.