The UK inflation rate fell to 0.3% in January - the lowest annual rate on record, official figures show.
The rate of Retail Price Index inflation also fell to 1.1% from 1.6% the previous month.
The Office for National Statistics said falling prices for food and fuel were the main factors behind the drop.
ITV News Economics Editor Richard Edgar said the 0.9% fall in inflation over the past year is the largest since 2001.
The fall in inflation over the past year - 0.9% - is the largest since 2001
At the sharp end of all the facts and figures from the Bank of England families are scrutinising their shopping baskets, and the businesses plying their trade week in, week out.
ITV News consumer editor Chris Choi reports from Sheffield - were people are just as anxious to know what the future holds for the economy.
George Osborne has said he agrees with Bank of England governor Mark Carney's positive assessment of the state of the country's economy.
The Chancellor took to Twitter to voice his support for "whatever action is needed" to bump inflation back up to target, amid predictions it could drop below zero in the coming months.
Agree with Governor 'economy is growing strongly, unemployment is falling & earnings growth picking up'.Our #longtermeconomicplan is working
Must remain vigilant to upside and downside risks and I welcome that MPC will take whatever action is needed to return inflation to target
Savers and borrowers should be prepared for a rise in interest rates, despite forecasts of a dip in inflation, Bank of England leaders have said.
In response to a question from ITV News economics editor Richard Edgar, the governor said:
Most likely the next move in monetary policy is an increase in interest rates.
We expect these ajustments to be limited and at a gradual pace, but the message is clear - in order to achieve our objective, we are going to look through this one-time adjustment, which is in the end going to be good news for British households.,,, abd ensure that inflation comes back to target in a timely fashion.
But that is consistent with some rate increases over the forecast horizon, in our judgement.
The Bank of England governor Mark Carney said interest rates could be cut further, and the £375 billion quantitative easing programme expanded if low inflation continues for longer than expected.
The Bank of England's governor, Mark Carney, has said that falling food and energy prices over the past few months is responsible for around two-thirds of the difference between current inflation level and the target level.
Stating that the UK is not currently in deflation, Mr Carney added that the falling costs of fuel - with oil prices having halved over the past six months - is also expected to boost take-home pay for workers across the country.
ITV News economics editor Richard Edgar is tweeting from the announcement:
"More likely than not that CPI inflation will turn negative at some point in the spring" says Carney but "UK is not experiencing deflation"
Economy to get a boost from low oil prices - 2.9% next year (from 2.6%) and 2.7% in 2017 (from 2.6%) - Bank of England forecasts
Take home pay will grow more than twice as fast as expected, largely because of lower oil (energy/petrol) costs - up 3.5% from 1.25% in Nov.
Separate your inflation from your interest rates with this explainer of the key terms you will hear in today's Inflation Report.Read the full story ›