The risk of deflation for the UK Economy
Jun 09, 2023, 06:47 PM
Welcome to the Economic Insights podcast, where we delve into the complex world of economics. Today we're going to discuss a topic that has been making headlines recently: the risk of deflation in the UK economy. Joining me today is our resident economic specialist, Adrian Lawrence. Welcome, Adrian!
Host: Welcome to the Economic Insights podcast, where we delve into the complex world of economics and explore the factors that shape our financial landscape. I’m your host, and today we’re going to discuss a topic that has been making headlines recently: the risk of deflation in the UK economy. Joining me today is our resident economic specialist, Adrian Lawrence. Welcome, Adrian!
Adrian: Thank you, glad to be here!
Host: So, Adrian, let’s start with the basics. What exactly is deflation, and why is it considered a risk for an economy?
Adrian: Deflation refers to a sustained decrease in the general price level of goods and services over time. In simpler terms, it means that prices are falling instead of rising, as we typically see with inflation. While it may sound beneficial for consumers, deflation can actually have detrimental effects on the overall economy. When prices decline, people tend to delay purchases, waiting for even lower prices in the future. This reduction in consumer spending can lead to a decline in business revenues, which can then result in job losses and lower wages. It creates a negative spiral that is difficult to break out of, hence the concern surrounding deflation.
Host: That’s interesting, Adrian. Now, specifically looking at the UK, what are some of the factors that are contributing to the risk of deflation?
Adrian: There are several factors at play here. One of the key factors is the aftermath of the COVID-19 pandemic. The pandemic had a severe impact on the global economy, including the UK. Governments and central banks responded by injecting massive amounts of liquidity into the system to support businesses and individuals. However, as the economy recovers, this excess liquidity can create a situation where demand fails to keep up with the increased supply of goods and services, leading to downward pressure on prices.
https://www.fdcapital.co.uk/podcast/the-risk-of-deflation-for-the-uk-economy/
Listen on Apple
Host: Welcome to the Economic Insights podcast, where we delve into the complex world of economics and explore the factors that shape our financial landscape. I’m your host, and today we’re going to discuss a topic that has been making headlines recently: the risk of deflation in the UK economy. Joining me today is our resident economic specialist, Adrian Lawrence. Welcome, Adrian!
Adrian: Thank you, glad to be here!
Host: So, Adrian, let’s start with the basics. What exactly is deflation, and why is it considered a risk for an economy?
Adrian: Deflation refers to a sustained decrease in the general price level of goods and services over time. In simpler terms, it means that prices are falling instead of rising, as we typically see with inflation. While it may sound beneficial for consumers, deflation can actually have detrimental effects on the overall economy. When prices decline, people tend to delay purchases, waiting for even lower prices in the future. This reduction in consumer spending can lead to a decline in business revenues, which can then result in job losses and lower wages. It creates a negative spiral that is difficult to break out of, hence the concern surrounding deflation.
Host: That’s interesting, Adrian. Now, specifically looking at the UK, what are some of the factors that are contributing to the risk of deflation?
Adrian: There are several factors at play here. One of the key factors is the aftermath of the COVID-19 pandemic. The pandemic had a severe impact on the global economy, including the UK. Governments and central banks responded by injecting massive amounts of liquidity into the system to support businesses and individuals. However, as the economy recovers, this excess liquidity can create a situation where demand fails to keep up with the increased supply of goods and services, leading to downward pressure on prices.
https://www.fdcapital.co.uk/podcast/the-risk-of-deflation-for-the-uk-economy/
Listen on Apple