Politicians and analysts have warned that Britain is on the verge of deflation after economic data released this morning showed that living costs are rising at their lowest rate in almost 50 years.

Figures from the Office for National Statistics showed that the retail prices index, which includes mortgage costs, fell to just 0.1% in January following the recent falls in interest rates and cheaper fuel. This is the lowest RPI level since March 1960, and it is expected to enter negative territory soon.

Liberal Democrat Treasury spokesman Vince Cable said inflation was now "virtually disappearing" as a threat to families, although this might not be obvious to those facing higher council tax bills.

"It is becoming clear that for the foreseeable future there is a higher risk of deflation than inflation, which is why it is inevitable and sensible that the Bank of England should be moving towards expansion of credit and the money supply directly," said Cable.