Deflationary pressures remain intense

Although headline consumer price inflation rose from -0.6% to -0.3% in February, this was driven entirely by a rise in energy prices as oil prices reversed some of their recent falls. Core inflation remained steady at a series low of 0.6% and looks set to fall further. While the latest activity indicators suggest that the economy continued to expand at the start of 2015, it is doing so too slowly to erode the spare capacity in the economy. Meanwhile, consumers’ and financial markets’ inflation expectations have remained worryingly weak.