UK’s deflation will be short-lived

Samuel Tombs, senior UK economist at Capital Economics, said today’s consumer prices figures show that the UK has finally joined other advanced economies in seeing a “beneficial” period of deflation.

But he added: “CPI inflation should return to positive territory in May as the effect of the shifting timing of Easter ceases to depress it and as the negative contribution from energy and food prices starts to fade.

“Meanwhile, there are still few signs that very low inflation is having malign economic effects – consumers are undertaking, not delaying, purchases and wage growth is picking up.”

CPI inflation eased from zero in March to -0.1% in April – the first time the measure has been in negative territory since 1960. Smaller increases in duties this April compared to those a year ago were partly responsible for the tick down.

Henry Dixon, fund manager at Man GLG, went a step further suggesting inflation could be in for a steep rise.

He said: “I very much expect to see an acceleration of GDP in the second half of the year, and actually investors should be focusing on the twin spectre of rising growth and inflation.

“I am always concerned when something has been written off, and inflation is definitely in that camp currently. In my view, when some of the short-term factors such as the fall in the oil price come out of the equation, it could overshoot the official target and climb back up near to 3% by January 2016.”