Tumbling oil prices and weaker growth are expected to keep inflation at an average of just 0.3% throughout the year, a report said.
The National Institute of Economic and Social Research (NIESR) said “continued commodity price falls” and weaker growth data will bear down on inflation this year. Inflation is currently at 0.2%, well below the Government’s target of 2%.
The UK’s construction sector slowed in January to its weakest level for nine months, according to Markit/CIPS UK Construction Purchasing Managers’ Index, falling below the expectations of economists.
Brent Crude is at 33 US dollars (£23) a barrel, more than 70% below the price of oil in the summer of 2014.
This uncertainty has led to global market volatility, which has seen the FTSE 100 Index fall by some 7% since the start of the year.
The NIESR report said the UK economy will grow 2.3% this year and 2.7% in 2017, unchanged from its report three months ago.
It said turbulent global markets and weaker growth in emerging nations will be offset by expanding UK domestic demand fuelled by rising wages and employment.
The Bank of England cut UK growth this year to 2.5%, from 2.7% last November, at its last quarterly inflation report.
However, the UK economy has continued to slow since last summer and last month Chancellor George Osborne said the UK faced a “dangerous cocktail of new threats” such as falling commodity prices, recessions in Brazil and Russia and rising tensions in the Middle East.
Bank of England governor Mark Carney is due to set out its latest targets when he represents the central bank’s next quarterly inflation report on Thursday.
But this current uncertainty means there is little pressure on the Bank of England to raise interest rates from the rock-bottom low of 0.5%, even though the US Federal Reserve raised rates in America last month for the first time in nearly a decade.
Last month, Mr Carney said “now is not yet the time” to hike rates from levels that have remained unchanged for almost seven years.
He added: “The world is weaker and UK growth has slowed. Due to the oil price collapse, inflation has fallen further and will likely remain very low for longer.”
