Britain's Deflation Shock

UK inflation has turned negative for the first time since 1960, with CPI falling to -0.3% in November 2025. The dramatic drop has triggered emergency meetings at the Bank of England and sent shockwaves through financial markets. The pound plunged 5% against the dollar in its worst day since the 2022 mini-budget crisis, while government bond yields collapsed to record lows. The Office for National Statistics cited falling energy prices, weak consumer demand, and post-Brexit trade disruptions as primary causes.

The energy price crash has been particularly severe, with wholesale gas prices down 70% from 2022 peaks due to mild weather and increased LNG imports. Combined with falling global commodity prices and China's economic slowdown, this has created deflationary pressures across the economy. Retailers are reporting their worst Christmas trading conditions in 15 years, with many offering 50%+ discounts just to move inventory.

The Deflation Spiral Risk

Economists warn that deflation could become self-reinforcing as consumers delay purchases expecting lower prices, leading to reduced corporate profits and wage cuts. The Bank of England has already cut rates to 3.5% and is expected to go negative in 2026 — a move not seen since the financial crisis. The government faces increasing pressure to launch direct stimulus measures, but political paralysis following the recent election has delayed action. The situation has revived memories of Japan's 'lost decades' of deflation and stagnation.