Economic experts have said that the pressure is now on to avoid a “prolonged period of deflation”.
Financial expert at Capital Economics Vicky Redwood said that if we were to have more than a few months of negative inflation it could weaken the economy.
“I think we could quite easily have negative inflation or deflation,” she said.
“The weakening economy will decrease inflationary pressures and we have also seen a very sharp drop in oil and energy prices and that means that inflation will begin to fall very sharply when rates have been cut.”
She added however that the UK does “not want to see a prolonged period like Japan saw” as it can “get very difficult to pull the economy out of it”.
London office workers and indeed, businesses across the country received a boost yesterday when the Bank of England cut interest rates to three per cent.
It is hoped the move will instil some confidence back into the financial markets and encourage consumers to start spending again.Share: