More “good” deflation to boost consumer recovery

Turbulence in financial markets once again overshadowed some positive economic developments on the domestic front last week. Indeed, Q2’s second estimate of GDP showed that the recovery in household spending has maintained a healthy degree of momentum, and the latest consumer confidence figures point to a further acceleration in spending ahead.

What’s more, although the recent falls in commodity prices have all but guaranteed that the UK experiences another bout of deflation before the end of this year, this should be a net benefit to the economy. The risk of deflation becoming engrained remains low and, by boosting households’ spending power, negative inflation should ensure that the consumer recovery remains in full swing.