Bank of England set to make its first deflation forecast

The Bank of England has been wrong-footed by the oil price collapse
The Bank of England has been wrong-footed by the oil price collapse
TOBY MELVILLE/REUTERS

Inflation will turn negative this year because of the dramatic slide in energy costs, the Bank of England will predict this week.

In 22 years of forecasting future prices in its closely watched quarterly Inflation Report, the Bank has never envisaged outright deflation — a year-on-year fall in the general level prices.

Analysts believe, however, that the 32 per cent fall in the oil price since its last report in November will force the Bank to conclude that inflation will drop to zero or less in the next few months.

Simon Wells, the chief UK economist for HSBC, said: “It could be the Bank of England’s first deflation report.”

Vicky Redwood, of Capital Economics, said that the projected inflation rate was “likely to graze