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Carney: prepare for deflation

Bank of England governor Mark Carney will this week raise the prospect of inflation falling below zero for the first time since the Bank started forecasts over two decades ago. Last summer, the Bank said in its quarterly inflation report that it expected the annual rate to stay just below 2% throughout this year. The autumn report suggested inflation would be lower than thought, but was still likely to stay within the 1%-2% range. But this week's quarterly report is expected to concede that inflation will dip towards zero, and may fall into negative territory. Thursday will also see the publication of Carney's letter to the Chancellor explaining why inflation has already fallen outside the target range of 1%-3%. Vicky Redwood, chief UK economist at Capital Economics, said: 'Carney will want to point out that, in all likelihood, the period of deflation will be brief and benign and that the MPC still expects spare capacity to be exhausted over the forecast horizon and wage growth to pick up.'

 

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