Inflation rate falls to record low

The rate of UK Consumer Prices Index (CPI) inflation fell to 0.3% in January, according to figures from the Office for National Statistics (ONS) yesterday.

Inflation as measured by the CPI is down from 0.5% in December to 0.3%, helped by falling food and oil prices. Inflation as measured by the Retail Prices Index (RPI) also fell to 1.1% from 1.6%.  

The Bank of England governor, Mark Carney has stated that inflation could drop to zero or even go negative for a short period, possibly until the end of the year, for the first time in over 50 years. 

However, Mr Carney, along with most economists, believes that this should lead to strong economic growth and this should help us avoid a deflationary spiral. Along with the Organisation for Economic Cooperation and Development (OECD) and other forecasters, the Bank has revised upwards its growth forecasts for 2016 and 2017.

From an investor’s viewpoint, lower inflation is a positive because even with record low interest rates, the majority of cash Isa accounts now beat inflation at least, according to the price comparison site Moneyfacts. However, for better returns, albeit with more risk, many income seekers are still looking at alternative options such as equity income funds and bond funds.

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