Inflation falls to zero in Britain for the first time on record

Enrique Díaz-Álvarez25/Mar/2015Currency Updates


Sterling fell by 0.5% against the Dollar on Tuesday after inflation hit yet another low in the UK.

Headline inflation in the UK fell to zero for the first time on record in February, with the consumer price index remaining static on an annualised basis to take it to the brink of deflation. Fuel prices have plunged by 16.6% during that period, while a fierce price war in supermarkets has seen the cost of food decline by 3.4% according to ONS. While Chancellor George Osborne claimed this was good news for family budgets, it is the first time since the adoption of CPI in 1989 that prices have hit zero growth. Persistently low oil prices and a strong Pound suggest deflation in March now looks increasingly likely. Worryingly for policymakers, core inflation fell below forecasts to just 1.2%, its lowest since 2009. This is likely to lead to increased dovishness when the Bank of England next convenes on 22nd April.

In other second-tier releases from ONS, the retail price index fell by 0.1% to 1.0%, the producer price index remained close to a multiyear low at -1.8%, while house prices also declined by 0.2% month on month.

Today will be a mostly quiet day in the UK with the announcement of the British Bankers Association mortgage approvals the only data out this morning.


The Euro ended higher against the Pound for the seventh consecutive day although dipped marginally versus the Dollar, ending trading 0.3% down.

Germany gave the Eurozone a boost on Wednesday after manufacturing growth in Europe’s largest economy surged to an eight month high. The flash PMI climbed from 51.1 to 52.4 to boost Eurozone expansion from an index of 51.0 in February to 51.9 this month. Equally as noteworthy, the services industry grew more than expected, with the Eurozone services PMI close to a four year high of 54.3. Elsewhere, Greece announced it will present a new reform programme to its creditors by next Monday, potentially opening the door to yet another Eurogroup meeting in Brussels, while George Osborne warned chances a Greece exit from the Eurozone were on the rise.

Germany will be the main focus in the Eurozone on Wednesday morning with the release of the monthly IFO business confidence indices for March at 9am.


The Greenback remained mostly stable against its peers yesterday, ending the London session 0.2% higher in trade weighted terms.

The US economy joined the UK on zero inflation in February after consumer prices unexpectedly rebounded from -0.1% a month previous. This marked the first time since October that prices had increased month on month, having shown a 0.2% increase from January. Encouragingly for the Federal Reserve hawks, the core consumer price index actually surprised on the upside, climbing from 1.6% in January to 1.7%. This is a good omen for the economy which has disappointed of late given harsh winter weather, weak global demand, and a strong dollar.

More positive data released from Markit yesterday afternoon, with the flash manufacturing index rising above expectations to 55.3 in March from 55.1. Manufacturing growth reached its fastest since October, boosted by the strongest uptick in new orders in five months. Even more impressive, orders for new US single family homes surged last month to its highest level in seven years. Sales jumped by 7.8% to 539,000 units, its greatest since February 2008.

The historically volatile measure of durable goods orders out at 12:30pm GMT in the US today should cause moderate volatility in the Dollar.

Rest of the world

The National Bank of Hungary lowered its benchmark interest rate for the first time since July on Tuesday, cutting by 15 basis points to a record low 1.95% in a bid to induce price growth and economic expansion.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.