“We should not confuse this welcome news with the threat of damaging deflation that we see in the eurozone,” Osborne will say in a speech, the BBC reports.

The speech comes a day after official figures showed the UK inflation rate had fallen to 0.5 per cent in December – its lowest rate since May 2000.

Economists have warned the fall means an outright drop in prices is possible.

Mark Carney, the Governor of the Bank of England, told the BBC after the figures came out that: “We will expect it to fall further, and inflation to continue to drift down in the coming months.” In a separate interview, Carney told ITV News that deflation was now “possible”.

But in extracts from the speech released by the Treasury, Osborne tries to distance the UK from the scenario playing out in the eurozone, where deflation has become a problem for policymakers.

He will say the sharp drop in the Consumer Prices Index is “almost entirely driven by external factors such as the oil price”, which has more than halved since June, and is “much more welcome than in the eurozone”, where inflation has fallen to -0.2 per cent.

“There the debate has understandably turned to the dangers of deflation – the risk of a self-reinforcing spiral where economic activity falters, consumers defer purchases as prices fall and nominal debt burdens become ever harder to manage,” he will say to the Royal Economic Society.

In contrast, Osborne will say that the UK could experience “a few months of very low or even negative inflation” without any significant risk to the economy.

“Rising real incomes, a recovery spreading to all parts of our economy, and family budgets that can stretch that little bit further – let’s celebrate these effects of low inflation, not fear them.”