Inflation is expected to fall to a fresh record low of just 0.1% when figures are released today, as Britain heads for a period of deflation.
A fall in the consumer prices index in February from 0.3% in January would provide a further boost for households already benefiting from falling fuel and food prices.
The country is forecast to see overall price falls in the spring as the global oil price slump continues to feed through to lower prices at the petrol pump and some utility bills fall. A lower oil price also cuts costs for manufacturers and food producers.
The strength of the pound against the euro, the UK’s main trading partner, makes imports cheaper and could also bring down inflation in the coming months.
Inflation was last close to the Bank of England’s 2% target last June, when it registered 1.9%.
Vicky Redwood, chief UK economist at Capital Economics, said: “Tuesday’s inflation figures are likely to show the UK taking another step further towards deflation.
“And the recent rise in the pound will put additional downward pressure on inflation further ahead.”
The latest spell of weak price pressures in the UK has triggered a division of opinion at the very top of the Bank of England, whose remit is to target inflation of 2%.
Mark Carney, the Bank’s governor, has argued that while inflation is likely to turn negative during spring, Britain is not heading for the dangerous deflationary spiral feared in the eurozone.
Deflation can become entrenched and difficult to escape once businesses and consumers delay spending plans because they expect prices to fall further still.
However, the Bank’s chief economist Andy Haldane said last week that in his view, policymakers could be underestimating the threat of UK deflation. As a result of inflation “dropping like a stone”, he said it could prove necessary for interest rates - already at an all-time low of 0.5% - to be cut further.
Carney on the other hand has argued that responding to the recent fall in inflation with a rate cut would be “extremely foolish”.
It suggests that the Bank’s nine-strong rate-setting Monetary Policy Committee is becoming ever more divided on the appropriate timing of the first rise in interest rates, on hold at their historic low since March 2009.
As recently as December, two members of the MPC - Martin Weale and Ian McCafferty voted for a 0.25 point rate hike, before dropping the call in January and at subsequent meetings.
