Low inflation should not be feared, says George Osborne
The sharp fall in the UK inflation rate should not be feared, Chancellor George Osborne will say in a speech later.
“We should not confuse this welcome news with the threat of damaging deflation that we see in the eurozone,” he will say in a speech.
The speech comes a day after official figures showed the UK inflation rate had fallen to 0.5% in December – its lowest rate since May 2000.
Economists have warned the fall means an outright drop in prices is possible.
But in extracts from the speech released by the Treasury, Mr Osborne tries to distance the UK from the scenario playing out in the eurozone, where deflation has become a problem for policymakers.
He says the sharp drop in the Consumer Prices Index is “almost entirely driven by external factors such as the oil price”, which has more than halved since June, and is “much more welcome than in the eurozone”, where inflation has fallen to -0.2%.
‘Self-reinforcing spiral’
Mr Osborne will say that the UK could experience “a few months of very low or even negative inflation” without any significant risk to the economy.
…click on the above link to read the rest of the article…
