UK inflation hits record low

UK annual inflation in January fell from December’s +0.5% to +0.3% in January.  This was slightly weaker than markets were expecting and is the lowest level of annual inflation since the Office of National Statistics records began back in 1996.  Back tested data suggests that the overall level of inflation is the lowest it has been since 1960.  The -0.8% monthly fall was mostly attributed to the lower price of oil, as expected, but supermarket price wars are now also starting to have an effect.  The Bank of England expects this period of falling inflation to be temporary and is unlikely to cuts rates from 0.5%, even if the UK slips into deflation, as the fall in prices stem from the supply side, rather than falling demand, and is good news for consumers. Sterling weakened 0.25% on the news and the FTSE 100 index pushed back up to recent highs around 6,877.