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Is deflation a potential problem for the UK economy?

News that the Japanese economy has again slipped into a deflationary period, albeit "mild" according to the authorities, is an unwelcome reminder that deflation is a potential problem for all economies around the world. So could the UK economy also experience a period of deflation?

Depending upon which inflationary measure you use, you could already argue that the UK economy is in a period of deflation with competition on the high street and in businesses continuing to grow. However, at this moment in time the threat of deflation in the UK is nowhere near that seen in Japan although the UK government need to monitor the situation very carefully and take further action where required.

The massive £200 billion quantitative easing program is helping to oil the wheels of commerce in the UK but there are concerns about how the economy will react as and when the UK government withdraw this massive funding programme. The UK economy needs to pick up speed "naturally" over the next few weeks and months in order to give confidence to UK consumers and UK businesses.

It would be foolish to suggest that deflation is dead in the UK and it would be foolish to suggest that the UK could not experience a similar situation to that now emerging in Japan.

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