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Economic think tank suggests UK would benefit from falling oil price

A renowned economic think tank has today suggested that the UK economy would benefit from falling oil prices over the next three years. However, there may well be a sting in the tail if oil prices continue to fall with the possible onset of deflation. So how will this work?

If oil prices remain at lower levels then we should see prices in business stabilise and then hopefully pick up as and when the economy starts to rise again. However, if we see further reductions in the oil price to substantially lower levels this will then lead to more competition on price and further discounts in the future. An economic climate where prices continue to fall as pricing competition increases will see the endless need to reduce costs which traditionally means redundancies.

As redundancies kick-in and there is less money to spend in the economy, further pricing pressure is injected into the UK, prompting more calls for further cost cuts and a reduction in consumer spending. Deflation is the real issue at the moment as UK businesses battle for customers in one of the harshest economic environments in modern times.

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