Is deflation still a major problem?
Only a few days ago the inflation figures surprised on the upside and many analysts believed this was the beginning of the end of the recession. However, today's release of the August monetary policy committee notes suggest that Mervyn King, and two other members of the MPC, believe the economy is still struggling and deflation could be a major problem in the weeks and months ahead.
The fact that a £75 billion increase in the quantitative easing program, as suggested by Mervyn King, would in effect devalue the pound yet more has not been lost on analysts in the UK. A weaker pound should in theory increase exports, because the overseas equivalent price would fall, although even when the UK economy was on its knees and the pound had collapsed there was little or no recovery in exports. If demand for products in the UK continues to fall and prices come under pressure we could be pulled into the deflation spiral which sees cost cuts, prices cut, cost cuts, etc.
After a period of relative calm for the UK economy it seems that there is a greater risk than ever before of a slide in business activity and the potential knock-on effects this would have could be devastating.
Share this..
Related stories
Gordon Brown comes under attack from German ministers
Gordon Brown has today come under serious attack from his German counterparts as questions are asked about his ongoing economic rescue plan. The German minister Peer Steinbruck has today called the UK rescue plan ineffective and cast doubt on Gordon Brown's economic prowess. Quite what the German minister plans to do with his own economy is unclear as is the reason why Gordon Brown has been attack...
Read MoreUK pound hits 10 month high against the dollar
While there were signs of recovery in the UK currency over the last few months, today's announcements from Barclays bank and HSBC have given currency traders something to think about. The indication is, albeit cautiously, that the UK economy has potentially turned the corner and liquidity should start to pour back into the UK money markets over the next few weeks and months. As a consequence the U...
Read MoreComet Staff face losing Job before Christmas
There were not many organisations across the UK that didn’t feel the full effects of the double-dip recession, but Comet, one of the biggest electrical retailers in Britain, are in a class of companies that failed to emerge from the downturn intact. While the company has already lost 41 shops and more than 1,000 staff, Deloitte has said that the lack of a firm offer from Comet to maintain the...
Read MoreIt is payback time for Tony Blair?
Only a few days ago Tony Blair was the unofficial favourite to take on the as yet undefined post of EU president but this evening he appears to have been the victim of a stitch up and his hopes of grabbing the top spot are fading rapidly. Only this afternoon Gordon Brown confirmed that he had put Tony Blair forward as the UK government's choice for the EU presidency post although this evening Fran...
Read MoreNorthern Rock shares plummet
Shares in the mortgage lender Northern Rock have plunged by as much as 23 per cent, and the chancellor, Alistair Darling, has authorised the Bank of England to provide the firm with emergency funding.Customers are being reassured that their savings and home-loans will not be affected, but branches have still seen queues of worried people trying to withdraw their money, and staff from rival banks h...
Read More