-Simon Wells, an economist with HSBC
The annual rate of consumer price inflation in the UK is predicted to have remained unchanged at 0% in March, whereas some economists argue the rate slid further into the deflationary territory as the effects of steep declines in energy and food prices early this year could peak in March. Cost of living in the UK dropped to 0% in February, hitting the lowest rate on record. The fall was triggered primarily by precipitous decline in food and transport prices. Core inflation, which strips out volatile components, is also expected to have remained from the previous month at 1.2%, marking the lowest level since December 2008. Other relevant data showed by prices in British shops had continued to slide into deflation territory for the 23rd straight month in March and hit the lowest level on record, according to the British Retail Consortium. The inflation data is due out later today.
In its March forecast, the Bank of England kept its near-term inflation outlook unchanged, saying the inflation rate is more likely than not to slid below zero in the first half of this year and then hover near that level for the rest of the year, before ticking up only slowly thereafter when this year's declines in energy and food prices drop out of the twelve-month comparison. Yet, the central bank revised down its medium-term inflation outlook due to risk of diverging monetary policy, stronger growth in the UK compared with the Euro area, which will put upward pressure on the Sterling.
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