The UK has slipped into deflation for the first time since the 1960s, but the Institute of Directors says this is not a cause for concern
The latest inflation figures, released this morning by the Office for National Statistics, reveal that the UK has entered a period of deflation, with the Consumer Price Index – the official measure of inflation – falling to 0.1 per cent in the year to April.
“The slip into deflation should not worry us, as it is primarily caused by a drop in the cost of energy, which is good news for households and businesses,” says James Sproule, the IoD’s chief economist.
“Falling prices in necessities, such as food and transport, along with a period of sustained job creation and wage growth mean demand and consumption will remain buoyant.
“Deflation can be a chronic problem where it represents a lack of consumer confidence and an unwillingness to spend. This danger is very real in some parts of southern Europe, but is not even a distant threat in the UK.
“While deflation does cause the cost of debt to rise in real terms, the benefits to the wider economy of a period of falling prices far outweigh any downsides,” he adds.