A DISASTROUS slide into falling prices looked closer than ever yesterday as the official rate of inflation dropped to 0.5 per cent last month — the lowest on record.

Austerity Chancellor George Osborne ignored economists’ warnings to boast that the drop in the consumer price index was “proof our long-term plan is working.”

Lower oil prices were the main cause of the fall, which places the headline figure slightly below wage rises.

On paper at least, people’s earnings are going up in real terms for the first time in seven years.

But TUC general secretary Frances O’Grady warned that the fall reflected “how fragile the economy is — not just in Britain but globally.”

Deflation can be a major negative force, encouraging people to wait for price cuts before spending, increasing the value of national and household debts and ultimately forcing retailers and producers to cut costs — raising the spectre of lower pay and job losses.

Ms O’Grady said more austerity could force a new recession.