The Economy Today

Consumer Index figures show that the UK inflation rate fell in October to 4.5% ( from 5.2% in September) as food prices, transport costs and oil fell.

The Office for National Statistics stated that this was the biggest month - on - month drop in CPI figures for 16 years.

The largest drop came from transport costs, due to the reduction in fuel costs, triggered by the sharp fall in crude oil prices recently.

Meanwhile, The Bank of England believes that inflation could drop to below 1% next year, with the fear that we could actually go in to deflation - i.e. negative inflation. This would be a disaster for British businesses and the larger economy as a whole, so the liklihood is that the Bank of England governors will cut interest rates still further to try and stimulate trade.

So why is deflation such a bad thing? Well, it’s a sign that people aren’t spending. As people cut back on purchases, businesses have to slash their prices to encourage spending, thus cutting their profit margins and having to make cut backs on costs. This means that jobs are likely to be shed, leaving a greater drain on unemployment funds.

A further problem is that investors could see their dividends drop, making them more likely to sell up their shares, causing markets to crash still further.

Lower prices at first sound like a good thing, but lets hope they don’t drop by too much - for all our sakes!

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