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Chancellor Osborne bids to calm nerves over negative inflation fears

London: The UK could experience negative inflation over the coming months without any significant risk to the economy, George Osborne is to insist.

The Chancellor will say the slump in the headline rate to just 0.5% is because of external factors - and the benefits for consumers should be celebrated.

The comments, in a speech to the Royal Economic Society to be made today, come as Mr Osborne and Bank of England governor Mark Carney try to calm nerves.

The Consumer Prices Index matched its lowest recorded level in December, driven by sliding food and petrol prices and subdued utility bills. Economists said that the continued plunge in the oil price meant it was likely to fall further and that a brief period of negative inflation was "not entirely out of the question".

The sharpness of the decline brings the UK uncomfortably close to the scenario in the eurozone, where there are fears of a damaging deflationary spiral after inflation fell to minus 0.2%.

The boost to households should lift the economy by stimulating consumer spending, as well as providing a fillip to the coalition Government ahead of the general election in May.

Mr Carney will have to pen an explanatory letter to the Chancellor because inflation is more than 1% off the Bank's 2% target. He has conceded that deflation is now "possible" - but insisted the tools are available to ensure that it does not become a problem.

Mr Osborne is expected to say: "The low inflation we see here in the UK - driven as it is almost entirely by external factors such as the oil price - is much more welcome than in the eurozone where inflation has been very low for some time and is now negative.

"There the debate has understandably turned to the dangers of deflation - the risk of a self-reinforcing spiral where economic activity falters, consumers defer purchases as prices fall and nominal debt burdens become ever harder to manage.

"A few months of very low or even negative inflation, driven mainly by external factors, does not in and of itself mean that we run the risk of deflation."

Eleven die in rocket attack on bus

Ukraine: An attack on a passenger bus in eastern Ukraine has killed 11 people, likely dealing the final blow to hopes that a short-lived and shaky ceasefire could take hold.

Across Donetsk, the city that Russian-backed separatists call their capital, explosions and the sound of shells whistling overhead are again unnerving the local population.

The holiday period was spent in relative tranquility after a new truce was called in December between government troops and Russian-backed militia. But by late last week, that uneasy calm was steadily unravelling.

In the single largest loss of life so far this year, the civilians on a  bus from Donetsk were killed yesterday afternoon by what Ukrainians say were rockets fired from a Grad launcher in rebel territory.

Regional authorities loyal to Kiev said the bus was passing a Ukrainian army checkpoint at the time, putting it in the line of fire.

Leading rebel representative Denis Pushilin denied responsibility for the attack.

The warring sides are now trading accusations over who is responsible for the breakdown in the truce that led to yesterday’s deaths.

Bookseller killed by falling shop sign

Blackpool: A bookseller has been killed by a falling shop sign at her workplace.

Margaret Sheridan (68), from Singleton in Lancashire, was pronounced dead at the scene outside Waterstones.

A joint investigation by Lancashire Constabulary and Blackpool Council is under way into the incident, which happened at about 5.30pm on Monday. It is unclear if the accident in Bank Hey Street was weather-related.

A spokeswoman for Waterstones said: “Margaret Sheridan was a much-loved and well-respected colleague. We offer our deepest condolences to her family. The accident is being investigated by the authorities.”

Witnesses said a sign at the front of the store had fallen off and the shop worker was trapped under it as members of the public ran to lift it up.

Gillian Campbell, Blackpool Council’s Cabinet member for public safety and enforcement, said: “We can confirm we will be providing support to the police in their investigation into the tragic death outside Waterstones on Monday evening.

Pope in plea for healing after island’s years of brutal civil war

Sri Lanka: The Pope has brought calls for reconciliation and justice to Colombo as he begins an Asian tour, saying the island nation cannot fully heal from a quarter-century of brutal civil war without pursuing the truth about abuses.

The 78-year-old spent nearly two hours under a scorching sun greeting dignitaries and well-wishers along the 18-mile route into town.

“What is needed now is healing and unity, not further division and conflict,” Francis said. “It is my hope that inter-religious and ecumenical co-operation will demonstrate that men and women do not have to forsake their identity, whether ethnic or religious, in order to live in harmony with their brothers and sisters.”

Court overturns Mubarak’s  conviction for public fraud

Egypt: The high court overturned the only remaining conviction against former president Hosni Mubarak yesterday, opening the way for his possible release four years after the revolution that toppled him.

Mubarak (86) was sentenced to three years in prison last May for diverting public funds earmarked to renovate presidential palaces and using the money to upgrade family properties.

He remains detained for now, but judicial sources say he could soon go free as no convictions remain against him.

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