Business Recovery and Insolvency Practitioners

NEWS: LOW INFLATION MAY BE BAD NEWS FOR THE ECONOMY

Added: 20/01/2009

The latest rate in the cost of living is beginning to slow and figures for December showed the biggest one month fall since April of 1992.

The annual rate of inflation has now dropped to 3.1%. The reduction in inflation has been brought about by the widespread lowering of prices. We are all aware of the pre Christmas sales of up to 70% off.

This is the third month in a row that we have seen a reduction in the rate of inflation and although it is too early to call a downward trend, worries about deflation are now heavily on the minds of economists.

Hard strapped families are obviously pleased that the rate of inflation is reducing. We have all seen a marked reduction in the price of fuel and general cost of living, however, if deflation continues over a long period of time it is an extremely damaging thing for the state of the economy.

In essence it means more of us are expecting an ever weakening economy and we will see a marked reduction in spending and investment whilst we wait for prices of assets to decline.

Unfortunately the down side is that less investment and less purchasing will inevitably translate into an even larger number of individual companies facing insolvency and a marked increase in the number of those who are unemployed.

We are a long way from a full-blown deflationary scenario and at the current time we are all experiencing a better deal particularly on non-food items than we were 12 months ago.

The Pound is falling like a stone against the Euro and the Dollar and obviously the Bank of England will be keeping a close eye on events.

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