UK inflation hits lowest level since records began

Mark Carney

Price growth in the U.K. in January fell to its lowest level since records began, marking a move closer deflationary territory.

The country's Consumer Prices Index (CPI)came in at just 0.3 percent in January, the Office of National Statistics (ONS) said Tuesday. This was in line with analyst forecasts but marked a move down from December's 14-year low of 0.5 percent.

This was on the back of falling oil prices-down 16.2 percent in the January-and low food prices-down 2.8 percent over the same period.

Ben Brettell, senior economist at stockbrokers Hargreaves Lansdown, highlighted that low price growth should give ordinary Brits and the country's economy a boost.

"The combination of low inflation, rising wages and falling fuel prices are great news for the U.K. consumer," he said in a note.

"Last week the Bank of England forecast real after-tax incomes would rise 3.5 percent this year, the strongest growth for 10 years. This in turn should be positive for economic growth."

Bank of England Governor Mark Carney warned last week that U.K. inflation was expected to fall below zero in coming months, but would hit the central bank's 2 percent target within two years' time-sooner than earlier forecasts.

In an accompanying open letter to U.K. Chancellor of the Exchequer George Osborne, Carney said the current period of falling prices was "temporary" and a "fundamentally distinct phenomenon from deflation."

However, Brettell highlighted that Monetary Policy Committee member Martin Weale, who until December had voted for a rise in interest rates, appeared to disagree. Last week, Weale said the risk of low inflation expectations causing a deflationary spiral was a reason behind him abandoning calls for a rate rise.

Howard Archer, chief U.K. economist at IHS Global Insight, said a brief period of U.K. deflation very possible, but was "largely good news for economy."

Tuesday's figures are likely to push back expectations of a rise in interest rates in Britain even further back. The Bank of England suggested last week that there wouldn't be an interest rate hike this year, saying that market interest rates don't indicate a hike until mid-2016-"materially lower than had been implied three months ago."

- By CNBC's Katrina Bishop. Jenny Cosgrave contributed to this report.