What causes deflationary pressure on the economy?
This can also vary, but here are some of the usual suspects: • Excess supply of goods services (supply outstrips demand) • Lower costs of importing raw materials (can be caused by strong £ or weak global prices) • Monetary policy, by decreasing the supply of money by making borrowings more expensive • Fiscal policy, decreasing supply of money by increasing the tax burden Some of you may have noticed that the factors that have inflationary effects, have deflationary effects when the opposite occurs, wierd that? Not really, it’s the age old rule of every action has an equal and opposite reaction. So what is causing inflationary pressure on the UK economy at the moment? • The weak £ – making it more expensive to import raw materials and goods into the country • Easing of monetary policy (base rate being lowered to all time low of 0.5%) thus increasing the amount of disposable income for UK consumers and businesses However, the monetary policy doesn’t seem to be working, most UK consumers
