Deflation is 'a positive step'

Inflation is "a very bad thing" and the fact that it has decreased is a positive step, one expert has suggested.

Deflation can be a threat because it can cause "sharp monetary contraction" which some analysts deem as a risk, explained professor of economics at the Cass Business School Geoffrey Wood.

However, in the past there have been fairly long periods of low interest rates without causing significant harm and it is unlikely that this current phase will pan out for very long, he continued.

Professor Wood added it is probable that the government will hit its aim of around two per cent.

"That is a good thing - it should actually be into the target and stay there."

He concluded that consumers should see prices in some areas come down but then the costs of goods and services will revert back to normal.

In other financial news, Bob Munro, from international money transfer specialist HiFX, said yesterday the sterling was being "punished" because falling share prices was causing many traders to sell UK bank stocks.