By Jonathan Davies
The Bank of England was warned that inflation could fall below 1% in the next six months.
Falling food, energy and import prices and the ongoing economic troubles in the eurozone all contributed to the steady decline in inflation.
The Bank of England has a target rate of 2%, but the Bank's governor Mark Carney said he doesn't expected to achieve that goal for three years.
Mr Carney also admitted he is likely to have to write a letter to the Chancellor George Osborne explaining why inflation has fallen below 1%.
The Bank of England also cut its growth forecast for 2015 to 2.9%, but said it believes average salaries will be up by 2% by the end of next year.
Figures from the Office for National Statistics (ONS) show that pay, excluding bonuses, grew by 1.3% in the three months between July and September. It's the first time pay has grown faster than the rate of inflation for five years.
Mr Carney said we are seeing the "the start of real pay growth".
"We are seeing encouraging signs with respect of pay... we expect this pick-up to accelerate," he added.
John Allan, FSB National Chairman said:
“Sustained low rates of inflation should delay any thoughts of a raise in interest rates. Although the reports predictions for European markets look gloomy, UK small business confidence remains high and this should continue to be supported by keeping interest rates low. Small firms welcome the supportive stance taken by monetary policy makers and hope to see it continue.”
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