In a letter to the chancellor to explain CPI inflation falling to 0.5% in December, Mark Carney stated that the central bank’s projections show inflation dipping to zero in the second quarter of the year and remaining “close to zero” for most of the year.
An accompanying BoE report added that “it is now more likely than not that CPI inflation will dip briefly below zero at some point in the first half of 2015”.
In his letter, Mark Carney said:
"Inflation is at its lowest level since the introduction of Inflation Targeting two decades ago. It will likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year."
The MPC judged that roughly two thirds of the weakness in inflation relative to the target can be explained by unusually low contributions from energy, food and other goods prices. The remainder reflects more generalised subdued inflationary pressures resulting from weak growth in domestic costs. The fall in the oil price over recent months means that inflation is likely to fall further in the near term, and could temporarily turn negative.
