UK Into Deflation – GBP for Sell

After the inflation report in England revealed that the U.K CPI is below 0% the political slogan has been “Enjoy low prices while they last”

I particularly don’t know who are they trying to convince, a portion of the population that doesn’t care about inflation yet – in this case deflation – or themselves.

Could it be the case of misinformation? That U.K economic leaders are misinformed about the cause of deflation or are they snoozing the alarm.

Which ever the case, the GBP has been in decline today after the report surprised the market.

I strongly believe that after recent increase in the GBP nobody was expecting the U.K to fall into deflation.

By definition, for those who haven’t google what deflation is, deflation is a consequence of a drop in demand for goods and services, which is reflected with lower prices of such good and services.

So I wonder how is Carney going to increase demand for such good and services, is he going to allow an influx of immigrant into U.K? very unlikely.

It is true that it is too early to be alarmed about deflation but there is not either reason to be optimistic.

According to the report the largest contributor to deflation was transport services – notably air and sea fares which means petrol prices are pushing prices lower and if we combine that with less demand it equals recession.

Coming out of recession it could take up to three months and if oil prices continue to fall, then, the slogan will be “enjoy deflation like Japan”

If deflation persist next month the GBP will be lower, so it is perhaps time to put the GBP in the selling watchlist.

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