Saturday, February 28

Britain is heading towards sub zero levels again.

Now here’s an interesting aspect, inflation rates in the UK might actually head towards negative territory, just look how it fell off the cliff

Here’s some extracts from this very interesting article.


In a deflationary environment, there is little question that savers get a bad deal on interest rates. Mervyn King, Bank of England governor, said as much recently when he expressed “sympathy” with those who had done the right thing and not spent too much.


Pensioners whose income provider is secure could be some of the big winners from deflation. Helen Ball, a partner at Sackers, the London-based pensions law specialists, says that at the very least they are unlikely to lose out.


Investors in almost every asset class bar government bonds are likely to be worse off in a deflationary environment, according to Graham Secker, equities strategist at Morgan Stanley. “Deflation is not good news for equities markets generally,” he says. “It is a signal that the economy is very, very weak and that sales and profits are going backwards.”


Pay is likely to be one of the most contentious issues debated during a bout of deflation.

Alistair Hatchett of Incomes Data Services, which tracks pay claims, says employers and workers are in uncharted territory. For decades, the rule of thumb was that salaries edged out inflation by 1.5 to 2 percentage points, allowing wages to grow in real terms. But in recent years, national average earnings have been subdued and lower than inflation, he says. A number of employers in the UK have already announced pay freezes, while others are discussing pay cuts as a jobs-saving measure.

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