Pound punished as UK slips into deflation

But sterling strengthens against euro after ECB comments

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The Independent Online

The pound took a hit against the dollar after the Office of National Statistics said the UK had dipped into deflation for the first time since 1960.

April’s inflation reading was pushed to -0.1 per cent by lower air and sea fares as well as a 3 per cent slide in food prices. Petrol prices, albeit up 2p on the month, are still down more than 12 per cent on a year earlier.

Although inflation is expected to bounce back towards the end of the year, sterling was pushed more than a cent lower against the dollar. The San Francisco Federal Reserve also bolstered the dollar as its researchers estimated that the US economy may have grown at an annual pace of 1.8 per cent in the first quarter of the year — far faster than the 0.2 per cent originally estimated.

The pound also bounced strongly against the euro today as European Central Bank rate-setter Benoît Coeuré said the ECB could accelerate its €1.1 trillion (£792bn) money-printing programme in May and June to mitigate summer lulls. Simon Derrick, a currency analyst at BNY Mellon, said: “The inflation figures are an influence but there are other bigger factors in play here.”