Low inflation and soon deflation will freeze pay of UK workers
18 Feb 2009
The 2.8 million Britons who have lost their jobs will have the satisfaction of knowing that those who still have jobs will face a pay freeze this year as inflation in UK hits a 50-year low as experts warn that the country is heading towards deflation.
As figures revealed by the Office of National Statistics showed that the retail price index (RPI), declined from 0.9 per cent to 0.1 per cent in January, the lowest in the past 50 years, analysts were quick to warn that the country could face the growing threat of deflation.
Figures also showed that the consumer price index (CPI) fell marginally from 3.1 per cent to 3 per cent, leading analysts to predict that it would soon reach 'zero' in the coming months.
The CPI, which measures the cost of living, has dropped mainly due to low fuel prices, reduction in prices for vehicles, repeated cuts in interest rates by the Bank of England, which in turn has driven mortgage rates downwards.
A retail price index (RPI) index is also used by companies to set pay scales for its employees, and experts feel with the index continuing to fall coupled with deep recession, private companies will use it to freeze pay this year.
This may not go done with a majority of the people working in private companies who have received good pay hikes in the past when inflation was also higher.
But trade union leaders have said that companies should not resort to pay freeze as it batter the confidence of workers, keeping in mind that employees in a few companies have voluntarily agreed to a pay cut and freeze, but doing it across the board would be disastrous for the economy.
Commentators feel that this logic defies even a person with low IQ, when there are 2.8 million people who are unemployed and not able to get jobs due to deep recession in the UK, which has battered the country's economy and thousands and thousand of people are being fired every month.
The ones with jobs should consider themselves lucky and should abstain from these demands or wishes when so many of their colleagues are sitting at home.
Experts also say that in order to maintain uniformity and not be burdened with exorbitant salary bills, the government should not raise the pay of government employees for the current year.
The government's decision to reduce VAT from 17.5 per cent to 15 per cent in December made retailers on high street doling out huge discounts in the month of December thereby adding to the inflation data.
The government is worried that deflation will make consumers postpones their purchases on the belief that prices would fall even further, which could drag the economy down even more.
Last week, Bank of England governor Mervyn King said that the monetary policy committee would be meeting in March and may take up the issue of using quantitative easing to combat deflation.
