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How Long Will The UK be in Deflation For?

Peter Hemple asks whether the UK is following the EU and Japan into a lengthy period of falling prices and how might this impact on property investing

The UK is officially experiencing 'deflation. On the 19th of May the Office for National Statistics (ONS) confirmed that the Consumer Price Index (CPI) was -0.1%, which means that prices are falling. The CPI has been dragged down into negative territory thanks to the falling cost of fuel and food, which when combined has been falling every month since the start of 2014.

Worryingly, 14 other European countries are also in deflation: Bulgaria, Croatia, Cyprus, Finland, Greece, Iceland, Ireland, Italy, Lithuania, Poland, Slovakia, Slovenia, Spain and Switzerland. And we may be stuck with bouts of deflation for a while.

Lots of economists are telling everyone that we shouldn't worry about this negative inflation. But we obviously should worry, especially as a major new round of austerity by the newly new Government will definitely be deflationary. That is what happened when it was introduced in 2010 - it slowed the economy and pushed down inflation.

Local councils say they have no more room for budget cuts and council leaders representing every type of local authority in England and Wales, as part of the Tory-controlled Local Government Association, recently expressed their concerns that they have already had to impose cuts of 40% since 2010 and cannot make more cuts without serious consequences.

They stated that: 'vital services, such as collecting bins, filling potholes and caring for the elderly, would struggle to continue
at current levels. It would leave other parts of the public sector, such as the NHS, left to pick up the pieces of councils scaling back services.'

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