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Britain could fall into deflation, says Carney, as oil and food prices drop

The Bank of England has dropped heavy hints that interest rates will remain unchanged for a while longer, as inflation fell to its lowest level since 2010 on the back of tumbling oil prices and the supermarket price war. Bank Governor Mark Carney warned that the economy is in danger of falling into deflation after it emerged that price growth as measured by the Consumer Price Index fell from 1% to 0.5% in December. Economists have suggested that the low inflation will be good for the economy as more money in people's pockets will help fuel the consumer-led recovery, and Mr Carney said that the benefits may be seen in the short term but he stressed that “we have the means at the Bank, and the will, and the responsibility to bring inflation back up”. In the CPI's food category, the price of vegetables fell 7.1% in the year to December; bread and cereals were down 2.5% and meat prices fell 1.8%. However, stripping out volatile items such as energy and food, so-called core inflation actually edged up to 1.3% last month, from 1.2% in November.

 

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