Inflation looks set to fall in 2009

Published on Thursday 11 December 2008 20:41

THE UK is set to experience softer price pressures next year after a Bank of England survey showed a record fall in inflation expectations.

The average inflation rate expected over the next year is 2.8 per cent, compared with 4.4 per cent in August – the biggest quarterly drop in the nine-year history of the Bank's attitudes study.

The fall will calm nerves that the recent spike in inflation could lead to higher pay demands and a damaging wage-price spiral.

But fears over job losses are set to curb wage demands and experts predict the official inflation benchmark could turn negative in 2009 – representing deflation – when the figures show big falls in oil and food prices.

More than 2,000 people surveyed in November put the current inflation rate at 4.9 per cent – slightly above the Bank's Consumer Prices Index benchmark's 4.5 per cent in October.

The Bank has already slashed interest rates from 5 per cent to 2 per cent since October – equalling the all-time low – in a bid to stave off the worst impact of recession.