UK Deflation Is Bad For Economy.

UK Deflation Is Bad For Economy.

The Office for National Statistics has today released figures showing that the UK economy has negative inflation i.e. deflation for the first time at -0.1% for the year to April 2015. This is a fall from March figures where inflation was 0%.

The governor of the bank of England, Mark Carney, will be required to report to both the chancellor of the exchequer and the Prime Minister as the trend growth rate for inflation of 2% has been missed yet again.

The cause of negative inflation is thought to be the low-cost of oil. This has resulted in lower prices at the petrol pumps as well and is lower travel costs by air, sea and rail.

Is deflation bad for the economy?

Things becoming cheaper would appear to be good for us when you look at things very simplistically. If something is cheaper now the reality is that deflation, negative inflation, the price that you pay is going down.

In reality, this is bad for our economy:

• it's bad for jobs
• it's bad for trade
• it's bad for us all.

Why?

If you can buy your car cheaper next month or next year or your television or your food shopping or your holidays or anything cheaper because prices are going down deflation then you will postpone buying it and that means the economy potentially collapses. It becomes stagnant as there is no growth. There is no job creation and reduced employment because if you are keeping your money in the bank and not spending it because you can buy cheaper next week, next month, next year then the economy will stagnate.

If people are not spending it puts jobs at risk, it puts services at risk, ultimately revenue goes down as well taxation revenue for the Government, so public services are also at risk.