CEBR: Real risk of actual deflation next year

There is a real risk of actual deflation next year, according to the Centre for Economics and Business Research (CEBR).

Charles Davis, an economist for the organisation, made his comments after the Bank of England today announced a one percentage point reduction in the base rate of interest, taking it from three per cent to two per cent.

In news which could impact people considering moving abroad and making international payments, the expert suggests that looking into the future "to about summer next year", there is a "real risk of actual deflation" as a result of falling prices.

He states a VAT cut will contribute to that deflation, suggesting the Bank is acting on a "major risk".

The Bank's monetary policy committee will take its next decision on the base rate of interest on January 8th 2009. The current inflation rate is 4.5 per cent, with the target standing at two per cent.