Deflation looms for Britain's economy

Deflation came a step nearer yesterday as the price of goods leaving British factories and the cost of inputs in the economy fell to record lows.

The dramatic decline in global prices for oil, food and other commodities has helped to push manufacturers' costs down at their fastest rate in almost a quarter of a century.

"Factory gate" prices have seen their biggest fall since 2001, the Office for National Statistics said yesterday. Input prices fell 1.4 per cent between June and July, standing 12.2 per cent lower now than they did at this time last year.

On Thursday, the Bank of England extended its programme of quantitative easing by £50bn to £175bn, sparking fears about the economy. The consumer prices index now stands at 1.8 per cent, but most observers expect it to fall to close to zero by January. The retail prices index is already below zero, thanks to cuts in mortgage interest bills.