Deflation is a fall in the general price level. It sounds like good news for shoppers, but the Bank of England treats it as a serious risk.
Last reviewed: 1 July 2026
|
MONEY GUIDES |
Deflation is a sustained fall in the general level of prices across an economy, the opposite of inflation. It is different from inflation simply slowing down: deflation means prices are actually falling, not just rising more slowly.
|
KEY FACTS
|
Why falling prices are not automatically good news
Cheaper goods sound appealing, but if prices are falling economy-wide, people and businesses may delay purchases in the expectation that things will be cheaper still later. That delay can reduce demand further, pushing businesses to cut costs, wages, or jobs, which can deepen the very slowdown that caused the price falls in the first place.
Inflation vs deflation
| Feature | Inflation | Deflation |
|---|---|---|
| Price direction | Rising | Falling |
| Typical effect on spending | Encourages spending sooner | Can encourage delaying spending |
| Bank of England's usual response | Raise or hold Bank Rate | Cut Bank Rate, consider QE |
|
Worked Example: A deflationary spiral in miniature If consumers believe a £1,000 appliance will cost £950 in six months, many will wait. Lower near-term sales push the retailer to cut prices further to attract buyers, reinforcing the expectation of future falls and delaying the next round of purchases too. |
|
This article is general information, not financial or legal advice. Rules and limits can change: always check the current position with the regulator or scheme concerned before relying on any figure here. |
Has the UK experienced deflation recently?
UK CPI inflation has stayed positive and above the Bank's 2% target for most of the past five years; deflation has not been the recent concern, sustained above-target inflation has.
What tool does the Bank of England use against deflation risk?
Beyond cutting Bank Rate, the Bank has used quantitative easing (QE), purchasing assets such as government bonds to inject money into the economy and support spending.
|
Related Guides |
|
Sources |
