The inflation report, published today, also saw the Bank lower its growth forecasts for the UK for the next three years.
It now expects GDP to grow by a maximum of 2.6% this year, down from its former forecast of 2.9%. Growth forecasts for next year were also lowered from 2.9% to 2.6% while 2017 fared even worse with estimated dropping back from 2.7% to 2.5%.
Bank of England governor Mark Carney said the single most important reason for below-target inflation has been the sharp drop in energy prices.
In March, oil was around 40% cheaper than in the middle of last year and the price of petrol at the pump has fallen by more than a tenth. Food prices have also dropped, and sterling’s appreciation over the past two years has continued to depress import prices.
But Carney warned that he did not expect persistent deflation.
He said: “Recent developments support the MPC’s view that a temporary period of falling prices, driven by a few components of the CPI, should not be mistaken for the potentially damaging process of widespread and persistent deflation.
“Fundamentally, the economy is growing, unemployment is falling, earnings growth is improving and there is no evidence of household spending being delayed.
“Consumer confidence is strongest in over a decade. Household spending should continue to be supported this year by the boost to real take-home pay from lower food and energy prices.”
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Consumers have been revelling in historically low mortgage rates and strong competition between lenders should continue to fuel some very attractive deals.
“Today’s report brings a double dose of good news for anyone seeking a mortgage in the second half of 2015, with approvals forecast to rise while borrowing costs remain low. There are a record number of products currently available on the market."
Meanwhile figures from the Office for National Statistics revealed the UK unemployment rate fell to 5.5% in March, its lowest since 2008.
Myles Rix, managing director of protection at LV=, said: “The fall in the rate of unemployment is positive news for both workers and the UK economy.
"But regardless of whether someone has a family or owns their home, every worker should consider how they would meet their monthly commitments if they were to find themselves unable to work and without an income."