UK Heads Towards Deflation

Following the news of deflation in the Eurozone, official figures have shown that the UK inflation rate also fell sharply in December.

The Consumer Prices Index (CPI) now stands at just 0.5%, its lowest rate since May 2000.

According to Mark Carney, the governor of the Bank of England, low inflation is likely to lead to lower interest rates for longer. A fall below 1% also requires Mr Carney to write a letter of explanation to the Chancellor of the Exchequer.

Leading economists believe that the rate of inflation will continue to fall making it unlikely there will be an increase in interest rates "for some considerable time to come".

Watch Mark Carney speak to the BBC's Economics Editor Robert Peston about inflation: