An accompanying BoE report added that “it is now more likely than not that CPI inflation will dip briefly below zero at some point in the first half of 2015”.
In his letter, Mark Carney said:
"Inflation is at its lowest level since the introduction of Inflation Targeting two decades ago. It will likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year."
The MPC judged that roughly two thirds of the weakness in inflation relative to the target can be explained by unusually low contributions from energy, food and other goods prices. The remainder reflects more generalised subdued inflationary pressures resulting from weak growth in domestic costs. The fall in the oil price over recent months means that inflation is likely to fall further in the near term, and could temporarily turn negative.
However Carney remained confident that inflation could return to its 2% target within two years.
He said that as domestic pressures start to pick up, and as a steady expansion in demand absorbs the remaining economic slack, it is currently appropriate to set policy so that it is likely that inflation will return to the 2% target within two years. Under the assumption that Bank Rate rises gradually over the forecast period, he said that this target is "likely to be achieved".
Peter Brodnicki, Chief Executive of Mortgage Advice Bureau, said:
"Interest rates are predicted by many to remain unchanged until at least the 4th qtr, that is now likely to move into next year with inflation at these levels, with further falls in inflation likely and the real possibility of deflation as in the Eurozone.
"Wage inflation is generally slow and not likely to race away, and property price inflation has definitely slowed, and so right now it is hard to see when rates will actually rise but I think you can definitely rule out any time this year."
Jeremy Duncombe, Director, Legal & General Mortgage Club, said:
“The outlook for the UK economy included in today’s Inflation Report will be heavily scrutinised for indications of when the Bank of England is expecting to raise interest rates.
"Whilst there is nothing wrong with making predictions about interest rate rises, we have seen how quickly expectations can move as the economic picture changes. It is important that consumers don’t get distracted by this speculation and put off making financial decisions. There are some excellent mortgage rates around at the moment and anyone who is coming to the end of a mortgage deal should act now rather than waiting. Banks will price in an interest rate rise before it happens so these deals will not be around forever. Consumers who are unsure of the best option for them should speak to a broker who will be able advise them on the right solution for their personal circumstances.”
