Deflation and Inflation

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There are some very detailed and reasonable predictions for the year ahead here, although I think I’d wait for the Bank of England and possibly an announcement in the New Year before I went it to similar amounts of detail.

Deflation and Inflation

UK inflation for November as measured by the CPI continued its sharp decline, falling by 0.4% to 4.1% from the peak of 5.2% for Septembers data. The Bank of England would have been aware of the sharp fall in Octobers inflation at the earlier November MPC meeting that saw an near unprecedented panic interest rate cut of 1.5%, followed by a further 1% cut in December that has taken UK interest rates sharply lower from a peak of 5% in early October to stand at just 2% today. The interest rate cuts have been accompanied by BOE statements that UK economy is expected to contract by 2% GDP during 2009, that puts the UK on target to experience a worse recession than that of the early 1990′s. However as my earlier analysis suggested that the UK could experience a decline of as much as 3% for 2009 which would make this recession just as bad if not worse than that of the early 1980′s which wiped out much of Britain’s manufacturing base.