Deflation in the UK
It’s since 1960 that deflation hasn’t appeared in the UK. Data released Tuesday by the national statistic institute tell us that deflation is back. The consumer price index fell 0.1 % in April compared with the same month of year 2014. This fact seems to be really strange at the first look. By now there are some years that the BOE is printing money and buying bonds on the markets trying to ease the credit and consume. All this is happening in front of many investors worried about inflation, these people are buying gold in big quantities as a kind of protection against the inflation’s bubble. For these investors, the Tuesday’s data are really a big surprise.
Now many investors are asking themselves why is this and where does the deflation comes from? We think in first place it comes from Europe and from the falling prices of the commodities and oil in second place. So this is an imported inflation principally. The fate of the UK economy is pretty much connected to the European one. English people are not so convinced about this and they want to be independent on their way of doing things and on their monetary policy. The fact is that this is impossible. When Europe enters into deflation, the UK will do the same. When Europe starts to grow faster, the UK will do the same. If Europe goes to war, the UK will follow. It doesn’t matter who starts first, the important thing is that, at the end, the UK can’t escape from Europe’s fate.
The BOE for the moment doesn’t look much worried about the deflation. The expectations by the bank are for a return to growing rates of inflation in the coming months. Oil prices are expected to rise as are the wages and these will have a strong impact to the consumer price index. According to the central bank the risks to fall in a situation of persistent deflation as in the southern Europe or in Japan are very low. Analysts interviewed by CNBC seem to agree with the central bank that this is a temporary situation.
The chief economist of the Markit institution expresses some doubts about how long it will take to see inflation reaching the BOE target of 2%. He is convinced that the deflation won’t have a long life in the UK but inflation may continue to remain very low for some time.