As a period of deflation would be very damaging, because it results in a delay in purchases in anticipation of lower prices in the future, the Bank of England is going to have to cut interest rates further.
There are those that believe the base rate may have to go as low as 1%.
Figures released yesterday also showed that unemployment rose by 140,000 to 1.82 million, with a further rise expected in the final quarter as companies shed jobs in the run up to Christmas.
GDP projections showed that the econemy was likely to shrink by 2% next year, which is worse than in the early nineties and on a par with the early eighties.
An increase in public spending and tax cuts have been put forward as a solution to the problem by Mssrs Brown and Darling, and these proposals were backed by Mervyn King, the Governor of the Bank of England, yesterday.
Roll on 2010.
