The Bank of England suggested that there won't be an interest rate hike this year, pushing expectations of a rise back to 2016, as inflation is expected to fall below zero in coming months.
"Market interest rates imply that Bank Rate is expected to increase from mid-2016 to a little over 1 percent in three years' time, materially lower than had been implied three months ago," according to the central bank's Inflation Report, published Thursday.
In an open letter to the Chancellor of the Exchequer, also published Thursday, Bank of England Governor Mark Carney said the current period of falling prices was "temporary" and a "fundamentally distinct phenomenon from deflation."
Data published last month revealed that the rate of inflation in the U.K. fell to 0.5 percent in December year-on-year -- its lowest level in 14 years.
Sharp falls in food and energy prices, which Carney said were generally good things for U.K. households, were largely to blame for weak inflation.
"Indeed, temporarily negative inflation rates driven by falls in commodity prices actually boost households' real take home pay, particularly if wages are growing. This is clearly the case in the U.K. at the moment," he said in the letter.