The UK economy has entered a period of deflation for the first time since March 1960, as the Retail Prices Index (RPI) plummets to -0.4 per cent.

Annual inflation, measured by the RPI – which includes housing costs such as mortgage interest payments and council tax – fell to -0.4 per cent in March, down from 0.0 per cent in February.

Kevin Mountford, head of banking at moneysupermarket.com says, ‘The level of savings – or the savings ratio – has been too low for too long in the UK. However, deflation might be the trigger that savers need to get them back in the savings habit because their money will be worth more.

‘The government will also be hoping that this increased purchasing power will encourage consumers to continue spending in an effort to kick-start the economy. However, debtors should use any spare cash to get out of the red now as deflation means the "value" of debts actually increases.’

Consumer Prices Index (CPI) annual inflation – the government's target measure – fell to 2.9 per cent in March, down from 3.2 per cent in February.