The Office for National Statistics (ONS) has revealed that UK consumer price inflation fell to 0.3% in January, the lowest level on record.
It was down from 0.5% in December.
The ONS said the drop in inflation was mainly caused by falling fuel and food prices.
Dennis de Jong, managing director at UFX.com, said: “The slide towards deflation is now inevitable but that won’t worry George Osborne one bit ahead of the election. The forecast for UK growth remains strong and with falling unemployment, rising wages and very low inflation, people have more money in their pockets now than for quite some time.
“There remain plenty of threats out there to global economic stability, particularly the situation in Greece and Ukraine, but low levels of inflation will help boost growth in the short-term. As oil prices stabilise later in the year, inflation will start to pick up again.”
Vanessa Owen, LV=’s head of annuities and equity release, added: “The fall in the rate of inflation is great news for those concerned about the cost of living. This is particularly important for retirees as they are often hit hardest by rising inflation. This section of society often spends a significantly higher percentage of their disposable income on bills, such as electricity.
“With people spending longer in retirement, the risk of inflation reducing the value of their capital is an issue that needs to be considered when deciding how to take an income from their pension fund, especially for those who are planning to take their savings as a lump sum.
“There are retirement solutions available that provide an element of inflation-proofing, yet the majority of retirees buy annuities on a level basis. However, since the Budget, we have seen this start to change, with those approaching retirement now looking for alternatives such as income drawdown, fixed term and investment linked annuities. We always encourage savers to shop around in order to make the most of their pension pots and achieve the level of income and flexibility they require.”