'One-in-two chance inflation will fall below 1 per cent in 2015'

Will Green is news editor of Supply Management
8 January 2015

There is almost a one-in-two chance that inflation will drop below 1 per cent in 2015, according to Warwick Business School (WBS).

Using a new forecasting system, WBS has calculated there is a 42 per cent chance that UK inflation will fall below 1 per cent, breaching a Bank of England target of 1-3 per cent. There is a 48 per cent chance inflation will hit the target and a 6 per cent chance it will more than 3 per cent.

Meanwhile, the economy is most likely to grow by 3-4 per cent, following GDP growth of around 3 per cent in 2014, but there is almost a one-in-four chance that growth will slip below 2 per cent in 2015.

Professor James Mitchell, of the economic modelling and forecasting group at WBS, said: “The risks of a breach of the Bank of England’s inflation target in 2015 remain high – close to a one-in-two chance.

“This is because, according to our judgement-free forecasting system, the probability of inflation falling below 1 per cent in 2015 has risen sharply, from 13 per cent a quarter ago to the current expectation of 42 per cent.

“This follows UK inflation recently falling to five-year lows due to weaker oil, food and import prices, and is consistent with continued stagnation and possible deflation in many of the UK’s export markets.”

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