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It’s official: Britain is the nation of deflation
Jonathan Prynn21 Apr 2009
THE cost of living is falling for the first time since 1960, official figures confirmed today.
A 0.4 per cent drop in the Retail Price Index last month ushered in the bout of deflation, Britain's first in almost half a century.
Economists said they did not expect the drop to be a one-off blip, predicting further falls in prices over the summer as lower energy and food bills feed through to the inflation figures.
Rob Pike, from the Office for National Statistics, said: “Clearly on the horizon there are downward pressures.”
The negative RPI, caused largely by lower mortgage costs, means millions of workers face the prospect of pay freezes because wage settlements are usually linked to the RPI.
Unions today warned employers not to use the RPI fall to cut pay. TUC general secretary Brendan Barber said: “Although in some workplaces unions have agreed to put pay increases on hold or take cuts, this shouldn't be the signal for employers across the country to seek wage freezes or cuts in pay.”
The official rate of inflation, the Consumer Prices Index, which is the Bank of England's official target rate, fell from 3.2 per cent to 2.9 per cent, slightly higher than expected.
Financial experts said lower prices were a rare piece of good news for savers. Kevin Mountford, head of banking at moneysupermarket.com said: “The level of savings has been too low for too long in the UK. However, deflation might be the trigger savers need to get them back in the habit because their money will be worth more.
“The Government will also be hoping this increased purchasing power will encourage consumers to spend in an effort to kick-start the economy.”
Pensioners are likely to be worse off because they do not benefit from lower property costs. Few have mortgages and most spend more on items that are still rising in price such as food. Economists also warned that deflation could make consumers more reluctant to spend.
David Kern, chief economist at the British Chambers of Commerce, said: “The RPI is in negative territory and fell by more than expected. Deflationary pressures could make the recession worse in the short-term, despite quantitative easing and the huge budget deficit posing inflationary pressures.
“The Chancellor must address these conflicting risks in his Budget. He must support business and administer targeted fiscal stimulus. But he also has to present a credible medium-term plan for restoring public finances to health.”
Reader views (14)
Public sector pensions will finally bring this country to its knees!!! . Time bomb waiting to happen. And who said those who work in the public sector are useless, couldnt get a normal job and havent got their heads screwed on.....And you know these Gov't Agencys do do, they cull all the consultants/contractors every now and again after blaming them for costing too much money and hire the same positions fulltime (which incidently is far more expensive than the former longterm and adds to the timebomb)!!!!
- Dc, Ealing, London, 22/06/2009 15:43
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So we are in a period of deflation. Know what that means? The private sector get no pay rises, whilst the public sector will be laughing all the way to the bank with their three year deals! Te other question then remains, will their gold plated pensions be reduced in line with deflation. Er, no!!!!
- Al, Kingstown UK, 22/06/2009 14:43
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Take it from an old age pensioner; nothing has come down at all, I still only eat one meal a day.
I just hope it doesn't become one meal in two days very soon.
- Mickyinlondon, london, 22/06/2009 14:43
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I have just been in the UK supermarkets in Swindon for the firat time in 2 years. Which items have reduced in price? I did not see anything that had gone down, up certainly.
As for B&Q, Wickes etc., all I noticed was exorbitant inflation!!
A deflating country? I think not, just a deviousely clever governement playing with the stats!!
- Kev In Guilfoyle, Cersay, France, 22/06/2009 14:43
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Fuel prices: UP. Domestic fuel bills: UP. Insurance costs: UP. Council tax: UP. Weekly shopping: UP.
Only the genius that engineered "an end to boom and bust" and predicted that the "UK is best placed to see out the recession" could call this "deflation".
- Nobby Clark, Perth, Scotland, 22/06/2009 14:43
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THIS IS GREAT NEWS. WELL DONE GORDON BROWN
- Keith Price, Luton, England, 22/06/2009 14:43
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We can be assured that Labour's Mr Darling will change all that tomorrow..... grrrr What's the betting that there are no tax increases.
Besides if its negative inflation then there should be NO tax increases based upon the yearly index. Its a 'no win' either way with Labour.
- Tony Islander, Herts, 22/06/2009 14:43
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More New Labour lies!!!!
- Mark A, Warrington England, 22/06/2009 14:43
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Had to check to see if this was April 1 .Council tax up 400,electricity up over 200, wait,I get it,my wages decreased,that must be it.
- David, london, 22/06/2009 14:43
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Who is Kidding who? just look at my council Tax.
- Stan White, leeds, 22/06/2009 14:43
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Another gift from NuLabour.
We must thank them at the polls.
- Dave Davies, Basingstoke, 22/06/2009 14:43
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Is that the thing where they measure price changes for a typical shopping basket? The one where they changed the contents of the shopping basket to things that either remain price-stable, like champagne, or even go down as time goes by - like flat screen TVs . . . ? Does it measure the cost of fruit, milk, petrol, council tax, as these are the things that seem to be going up in price and are daily necessities?
- Roz, France, 22/06/2009 14:43
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Lies, damn lies and statistics! My cost of livng spirals ever upwards.
- Michael, London, 22/06/2009 14:43
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Any mortal being who takes a scrap of notice of this spin nonsense, needs their head examining.
I read this morning that the cost of living had INCREASED by 18% in the past year. Now we are being told that everything is cheap, cheap, cheap and Gordon Useless Brown has performed a miracle!!
I have never read such codswallop in all my life.
Ask ANY pensioner in the UK how they are coping with the never-ending increase in the cost of basic food items and the extortionate gas and electricity bills they keep getting, and all this rubbish about things are becoming less expensive merely illuminates just how distant those boffins in Whitehall are from reality on the street.
I noticed today that one dozen eggs were GBP2.76. WOW!! Gold-plated chickens at that price!!
RIP OFF UK.
RIP-UK.
- Reuben Camara, Morecambe UK, 22/06/2009 14:43
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