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UK economy encounters deflationary pressure

In a worrying turn of events it has been revealed that the UK economy is falling further and further under the spell of deflation as prices begin to come under more pressure and businesses struggle to survive. While the UK government prefers to use the Consumer Prices Index (the CPI excludes housing costs) there are many who believe this gives a misinterpretation of the UK economy. The CPI fell from 2.9% to 2.3% between March and April which was slightly worse than analyst expectations of 2.4%.

However it is the fall in the Retail Price Index (RPI) which is concerning many analysts with Aprils figure of -0.4% under further pressure and dropping sharply to -1.2%. This is the figure which includes housing costs as well as everyday living costs and has now fallen to its lowest level since records began back in 1948. There are many who believe the risk of deflation is greater than the risk of inflation over the next few years as deflation has a reputation for destroying economies and destroying businesses.

In effect deflationary pressure will see prices for consumer goods and services fall on an ongoing basis which would place more pressure on business profit margins, lead to cost cuts and eventually lead to a rise in unemployment. The risks are there and they are starting to become ever clearer!

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