The governor of the Bank of England has warned that inflation could turn negative for one or two months this year.
However, Mark Carney (pictured) added in the Bank’s February inflation report that he did not expect it to lead to a much-feared deflationary spiral.
He also said that the was a chance that interest rates could rise earlier than market expectations.
Dennis de Jong, managing director at UFX.com, said: “There was plenty of positives to take from Mark Carney’s speech but at the same time a number of warnings. Growth forecasts have been upgraded and UK households will feel better off than for many years as a result of lower oil and food prices, and the increase in personal tax allowances. Unemployment is at its lowest level in six years and the struggling Eurozone should be boosted by the massive quantitative easing programme.
“On the other hand, there was a warning that deflation is imminent and that the interest rates could well be cut. More quantitative easing would then be order and, although the UK is not as exposed as it was to Greece a few years ago, a Greek exit from the euro would impact on the Bank of England’s forecasts.”