Consumer price inflation fell at an annual rate of 0.8% compared to 1.5% in March, official data showed on Wednesday. It was the largest drop in a month in more than a decade and brought inflation below the BoE’s 2% target. Deputy Governor Ben Broadbent has said it could fall below zero by the end of 2020.
The BoE increased its bond buying program to a record £ 200 billion in March as the COVID-19 crisis deepened, and many economists expect a further increase on June 18.
Markets see a chance that the BoE can cut interest rates below zero for the first time by the end of the year.
Ruth Gregory, an economist at Capital Economics, said underlying price growth would remain subdued, as weak demand more than offset any inflationary impact from the pandemic.
“Against this backdrop, we expect the Bank to expand its quantitative easing program,” she said.
The Office for National Statistics said that inflation readings were likely to be volatile because the closure of the coronavirus prevented its price controllers from obtaining prices on more than a fifth of goods and services, forcing l ” ONS to estimate them or to use substitutes.
Lower prices for energy bills, transportation – which includes gas – and clothing and footwear, causing inflation to fall further.
The ONS said that clothing retailers, hit by government home orders, have used more discount sales and that prices have dropped the most since 2010, down 2.9% per year.
Household bills have fallen the most since 2009, reflecting the price caps previously announced.
But there has been upward pressure on the price of video games and consoles, board games and children’s toys, as well as fresh vegetables, the ONS said.
Core inflation, which excludes energy, food, alcohol and tobacco, remained broadly stable at an annual rate of 1.5%.
Retail price inflation – an older measure that according to the ONS is inaccurate, but widely used in bond markets and other commercial contracts – fell to 1.5% from 2.6%.
Falling the CPI below 1% will force BoE Governor Andrew Bailey to tell the government how the central bank will try to push it back up.
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