UK inflation stays at zero in March

The UK has avoided its first period of deflation since the 1960s for another month, with prices remaining unchanged in the year to March.

This is the joint lowest 12-month rate on record and reflects the continuing impact of the slide in oil prices.

The Office for National Statistics began producing the consumer inflation series in 1996, but experimental work by the agency suggests the last time the UK saw inflation this low was in early 1960.

The Bank of England and most economists expect the rate to turn negative over the coming months.

But while the term deflation conjures up images of an economy grinding to a halt, most economists believe the drop in prices will actually help to boost growth by giving consumers more spending power.

Vicky Redwood, chief UK economist at Capital Economics, said the fact the fall in prices was mainly due to lower energy prices "makes it a good thing for the economy and there is no evidence yet that a more damaging, long-lasting period of deflation is on its way."

While economists are on alert for any signs of a 1930s-style deflationary spiral, there are no indications of purchases being delayed in anticipation of lower prices in the future. In fact data on Tuesday from the British Retail Consortium/Nielsen showed UK retail sales increased by 3.2 per cent on a like-for-like basis in March.

While business investment intentions have weakened, survey respondents have put this down to uncertainty surrounding the general election.

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