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By Bloomberg

Britain’s inflation rate fell to a record low in December, which will force Governor Mark Carney to write the Bank of England’s first open letter explaining why prices are rising too slowly.

Consumer-price growth weakened to 0.5 percent from 1 percent in November, below the 0.7 percent median forecast in a Bloomberg survey. Along with May 2000, that’s the lowest since records began in 1989, and Carney said today inflation may “continue to drift down in coming months.”

Plunging oil costs and supermarket price wars are driving the sharp slowdown in U.K. inflation. With price growth below the BOE’s 2 percent target and a weak euro-area economy damping export demand, that’s helping Carney and his majority on the Monetary Policy Committee justify keeping the key interest rate at a record-low 0.5 percent.

“The headline rate could fall below zero in the coming months,” said David Tinsley, an economist at UBS AG in London and a former central bank official. “Pressure on the BOE to raise the interest rate has diminished very sharply.”

The last time the inflation rate was this low, Madonna was about to marry Guy Ritchie, American Beauty had just won the Oscar for Best Picture and the dot-com bubble had burst.

Carney’s Target

Separate data showed factory-gate prices, a leading indicator of inflation, fell the most in five years.

Carney told the BBC the BOE remains on course “to bring inflation back” to the 2 percent goal.

“We have the means at the Bank of England and the will,” he said. “We generally do that within a two-year horizon and we can certainly do that with the current outlook.”

Chancellor of the Exchequer George Osborne said the drop in the inflation rate was “welcome news,” with family budgets going further and the recovery starting to be widely felt.

The consumer-price data showed that food prices plunged 1.9 percent in December from a year earlier amid price cuts by supermarket chains including Tesco Plc and Wal Mart Stores Inc.- owned Asda to fend off competition from discounters. Reflecting the drop in crude oil, the price of gasoline has fallen about 18 percent from its 2012 peak, according to the statistics office.

Falling energy costs are also affecting the euro area, where prices recorded their first annual decline in more than five years in December. That’s pushing President Mario Draghi and the European Central Bank closer to implementing more stimulus, including government-bond purchases.

MPC Debate

In the fourth quarter, U.K. inflation averaged 0.9 percent, below the 1.2 percent forecast by the BOE in November.

While two members of the nine-person MPC have called for higher interest rates in recent months, investors are all-but ruling out an increase this year, Sonia forward contracts show.

Inflation more than 1 percentage point away from the BOE goal requires Carney to write to Osborne explaining the undershoot and how he intends to return it to target. Their exchange will be released alongside the February Inflation Report, the central bank said today.

The last letter to the chancellor was written by then Governor Mervyn King in February 2012, when price increases were running above 3 percent. No letter has ever been triggered by inflation falling below the threshold since the BOE became independent in 1997.

A letter would be required every three months if inflation remains below 1 percent. Separate data today indicated it may be weak for some time.

Input prices at factories fell 2.4 percent in December from November and dropped 10.7 percent from a year earlier, the most since July 2009, the ONS said. Output prices declined an annual 0.8 percent, the most since September 2009.

Crude oil and petroleum products were the main drivers of the declines. Oil traded below $46 a barrel today and has fallen 60 percent from almost $116 on June 19 last year.