Deflation First Time In 55 Years

Business chiefs say interest rates must be maintained at 0.5% to enable businesses to grow.

Inflation has turned negative, for the first time in more than half a century.

The Consumer Price Index, which measures changes to the cost of living, fell to minus 0.1% in April, according to official figures.

Liz Cameron, Director and Chief Executive of Scottish Chambers of Commerce, said: “Last month we described the opportunity to contribute to economic growth presented by zero inflation, the latest release indicates that the UK has now entered a period of deflation. 

“UK consumers are now benefiting from a declining overall price level, and in particular, lower costs for transport services – a result of sustained declining oil prices. This is good news for the economy as a whole - increasing the real disposable income of consumers, but deflation is also a sign that consumer spending in the UK needs to be further stimulated.  

“It should also be remembered that deflation is bad news for debt holders, increasing the real value of their debt while the general price level falls. 

“Although forecasters expect inflation to move back into positive territory in the coming months, the need to maintain interest rates at the 0.5% base rate while UK inflation remains well below its 2% target, is as crucial as ever to enable businesses to grow.”