The Bank of England has cut its 2015 growth forecast from 2.9% to 2.5%, in figures published in its quarterly inflation report.
Governor Mark Carney warned that deflation could emerge this year, after being recorded as 0% in February and March, well below the Bank’s 2% target, and that interest rates would only start to rise in about 12 months’ time.
However, he argued that a temporary period of falling prices should not be mistaken for the potentially damaging process of widespread and persistent deflation as fundamentally, the economy is growing, unemployment is falling, and earnings growth is improving.
Discussing the low inflation figures, Hannah Maundrell, Editor in Chief of Money.co.uk, said:
“The Bank of England’s inflation report was comparatively upbeat but the message to consumers is clear: make the most of cheap prices now because they’re not going to last. The tides will turn at the end of the year and we must hope that wages keep up or many will find themselves struggling to cover basic living costs once again. By all means, enjoy the extra leeway that low prices allow but plan ahead; this is the only way to protect your wallet against the challenging – and more expensive – times to come.”
Carney went on to explain that productivity growth is the key determinant of income growth and shared prosperity, and the disproportionate growth in relatively low productivity and low paid jobs has meant that growth has been, and will continue to be, negatively impacted.
In more positive news, the latest figures from the Office of National Statistics (ONS) show that unemployment has continued to fall, down 35,000 to 1,83 million, and average pay for employees, excluding bonuses, rose by 2.2% in the quarter compared with a year earlier.