Inflation expected to stay at 0.1%

Inflation expected to stay at 0.1%

Inflation is expected to stay at 0.1% when official figures for December are published today, as low oil prices and discounting among clothing retailers bore down on the cost of living.

The Consumer Price Index measure of inflation has hovered between a narrow range of 0.1% and minus 0.1% for the last eleven months, straying into negative territory in October, September and April.

This week Brent Crude prices dipped as low as 27.69 US dollars a barrel, hovering around 13-year lows, while unseasonably warm winter weather prompted many clothing retailers to begin discounting early in December.

Last week the Bank of England's Monetary Policy Committee (MPC) voted eight to one to keep rates unchanged at their historic lows of 0.5%, where they have now remained for more than six years.

The MPC's decision comes amid increasing concern over the global economy, as well as signs of slower-than-expected UK growth.

Global stock markets have tumbled since the start of the new year after a run of poor economic data in China and interruptions to trading in Chinese stocks, which saw around £110bn wiped off the value of top flight firms on the London market in the first two weeks of the year.

Minutes of last week's MPC meeting showed the Bank believes UK growth has also been weaker than it predicted in November and that inflation will remain far below its 2% target for some time yet.

It lowered its outlook for gross domestic product growth in the fourth quarter of last year and first quarter of this year by 0.1 percentage points to 0.5% in each quarter. This follows growth of 0.4% in the third quarter.

Chief UK and European economist at IHS Global Insight Howard Archer said: "UK consumer price inflation is expected to have been minimal again in December due to ongoing appreciable discounting by retailers, muted food prices and lower petrol prices."

Although Archer did forecast inflation picking up to around 1% in August and 2% in mid 2017, as wage rises increase and sterling weakens.

However, economists at Oxford Economics expect inflation will jump to 0.3% in December, due to rising pay and because last month's 2.6% fall in petrol prices was mirrored by a similar fall a year ago, which will not exert additional downward pressure on prices in December.