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Osborne: Let's celebrate effects of low inflation not fear them

Britain could experience negative inflation over the coming months without any significant risk to the economy, the Chancellor is expected to say.

In a speech to the Royal Economic Society, George Osborne will say the slump in the headline rate to just 0.5% is due to external factors - and that the benefits for consumers should be celebrated.

Bank of England Governor Mark Carney told ITV News that deflation in the UK is "possible," but is a risk that can be managed,

He was speaking after inflation fell to just 0.5%,which was welcomed by David Cameron as "fundamentally good news" for household budgets.

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Bank of England to write to Chancellor after inflation falls below 1%

Bank of England governor Mark Carney will need to write a letter of explanation to Chancellor George Osborne after official figures showed inflation had fallen below 1%.

The explanation is needed because the the rate - which fell to 0.5% in December - is more than 1% off the Bank's 2% target.

Bank of England policy-makers have said they expected CPI to fall below 1% and remain there for months to come.

But the sharpness of the decline brings the UK uncomfortably close to the scenario in the eurozone, where there are fears of a damaging deflationary spiral after inflation fell to minus 0.2%.

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Osborne: Let's celebrate effects of low inflation not fear them

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