The big question...

Business Argus has asked the local business community what they think of the inflation figure being so low...

Noel Williams, partner, Kilsby & Williams, Newport

It is great news that we may have negative inflation coming our way. For as long as I can remember we have been dogged by high inflation but with this latest forecast, the politics of increasing health and education budgets in line with inflation will be redundant. Everyone should benefit from lower oil and food prices and with the advent of some reasonable pay rises on the horizon, the UK population should see real improvements in standards of living over the next year or so. This however is not the signal for any government to do anything other than keep costs to a minimum and improve the efficiency of their governance.”

Guy Jones, NatWest’s director of commercial banking for Cardiff and East Wales

While the UK is not in deflation territory yet we are heading that way. The Bank of England expects a few months of deflation in the first half of this year. Deflation can come about for a couple of possible reasons - either something has happened on the supply side, such as a big fall in oil prices or a long term fall in the price of computer processing power, or something has happened on the demand side, such as nobody buying anything, so firms constantly have to lower the prices they charge to make sales. Generally the former is viewed as 'good' (unless you are an oil company) and the latter as 'bad' as it reflects weak demand in the economy. It is hitting the oil sector already - estimates are that a lot of oil extraction on the UK Continental Shelf becomes unprofitable if oil prices stay below $70. The thing to watch is for signs of the 'bad' deflation creeping in. Excluding fuel and food, UK inflation is still low at 1.3 per cent year on year. There is evidence, for example from the ONS' retail sales data, that many firms are having to make heavy use of discounting to maintain sales. To the extent that this gets worse, this means a squeeze on margins, profitability and then the ability of a business to invest and grow.

Dr Bridget Kirsop, Success Coach and head of Newport Master Mind Group

Keeping motivated and taking the actions needed for your business growth is really important. Not doing this means that you can get dragged into political headlines that make you worry and stop the important actions.

Peter Lewis, managing director, Industrial Automated Controls Ltd, Newport:

I think all that most businesses need is stability to be able to plan for the future. The Bank of England confessed to me once that tinkering with the bank rate takes more than two years to have any impact, and that more influence comes from external markets than from them. Negative inflation will have little impact on the marketplace if it is slow and gradual. The market will adapt. As with oil, I don’t see other commodities coming down in price quickly. Going up is another matter, and as soon as they can, I can see prices increasing rapidly and this may well have a greater impact than we are seeing from prices going down.

In our industry, we seem to lag the high street by a couple of years. At IAC we operate in industrial markets which take years to plan, so money allocated filters through very slowly. We are seeing a lot of movement at the moment, but as it is year end, this could just be companies getting budgets together without the money being allocated yet. Hopefully, things will continue to pick up gradually and we will not see a rapid acceleration in demand. High demand will simply fuel inflation and cause destabilisation in the job market. Undoubtedly we will hear a lot of nonsense from the government leading up to the election, they will attempt to talk up the economy and claim all sorts of credit for having controlled it. In reality, the economy sees little influence from politicians and all they do is add to the financial burden by altering processes and changing things which hardly need changing. We are seeing the results of years of changes to the NHS at the moment – from both major parties. Tinkering with the system has had a massive impact on the way we deliver health care and anyone who has been in need of the emergency services lately will agree that they are in serious trouble. I have personal experience of the system and it is not a nice thing to be in the middle of. People are being kept in hospital beds for weeks waiting for operations – money being wasted doing absolutely nothing. Investment in equipment and specialists at the top would remove the waiting time and take a massive burden off our hard working nurses and junior doctors. I realise that the demand has risen, and people are living longer, but the alterations to the system made over the past 10 years have given GP’s more control and allowed them to work less. People are going to A and E because they can get seen there straight away, instead of waiting two weeks for an appointment with their local GP. A perfect example of a well-meaning and poorly thought out policy which does not manifest itself for five years.

Liz Maher, director, Centurion VAT Specialists, Langstone

The monetary policy committee has decided not to raise interest rates to stem, as they see it, a decline into negative inflation. While we as consumers feel instinctively better as we see failing oil prices impact on our weekly spending at the petrol pumps, this decrease in oil prices is one of the main factors behind the pressure on low inflation. The economists argue that people will wait to spend money on large purchases as they will think the pound in their pocket will buy them more if they wait creating further deflation - yet they see the way out of deflation as driven by asset purchases by business being encouraged by low interest rates to start investing in their businesses. Contradictory? The key is people's confidence to spend irrespective of whether it's a personal decision or a business one - I think that confidence is growing and its driven by both sectors of society seeing opportunity for sustainable work.

Paul Bennett, senior executive search director, Acorn, Newport

As a good bellwether for the economy generally, the recruitment sector reflects well how employers across all sectors are performing, in terms of levels of productivity, confidence and growth. Acorn's business covers a diverse geography throughout the UK and spans a number of different industries and sectors - businesses are currently in a period of sustained growth, with wages raising and therefore we see negative inflation as a short-term situation. As such we expect normality to resume without any detrimental impact on jobs or the labour market.

Robin Hall, managing director, Kymin, Newport

The governor of the Bank of England, Mark Carney has said that inflation in the UK could temporarily turn negative in the spring because of the fall in oil prices as well as price wars amongst supermarkets. He has hinted that the Bank of England is prepared to cut interest rates below its current 0.5 per cent base rate as well as adding to its £375bn quantitative easing programme if required. If we have a cut in interest rates this is likely to help first-time buyers struggling to get on the housing ladder but will be a fresh blow for savers with already record low savings rates. This could have a double benefit for a firm of financial planners such as Kymin. We have already seen an increase in investment business as clients are wishing to explore other avenues for their savings and I would anticipate an increase in enquires for mortgages if we do have a further cut in interest rates. In the short term, with lower interest rates, rising wages, falling oil prices and a more buoyant job market this will be good for consumers, but negative inflation in the long-term will lead to stagnation with consumers potentially putting off spending until goods become even cheaper.

John Newell, Kingstone Newell Estate Agents, Newport

Despite much recent talk of negative inflation the housing market in Newport remains strong. We continue to experience good demand from both home owners and investors alike. Supply is now becoming our biggest issue with houses being sold at a greater rate than new instructions coming in. We believe that the nature of the negative inflation is key to this, largely driven by falling oil prices. House buyers are actually seeing there disposable incomes increase as a result of lower energy costs and therefore confidence towards the house market grows. Should the Bank of England further reduce the interest rate down from 0.5 per cent to offset negative inflation and encourage consumers to start spending again, we could expect to see an increase in the number of mortgage products available offering very low interest rates.

Stephen Parry-Langdon, finance manager, HardingEvans Solicitors, Newport

An important part of our business is supporting local businesses and providing them with the legal advice that they need to address the opportunities and threats that they face in their business sectors. At the moment, the economy is experiencing deflation on the back of falling oil and energy prices, and so local businesses should benefit from these lower inputs to their cost models, with the effect that they can increase their investment in their own businesses. This creates opportunities for commercial law firms to advise and assist clients in such matters as commercial property transactions, commercial contracts, mergers and acquisitions, and employment contracts with growing workforces. These are all areas where a commercially focussed law firm can add value to its clients’ businesses during the “good deflation” times. Much, however, has been written about the prospect of “bad deflation” – where businesses experience contracting markets as a result of customers delaying purchases in the expectation of future lower prices. Commercially-focussed law firms are able to support their business clients through these times as well with services to assist business in the collection of monies owed to them, to assist in efficient workforce structures, with audits to help businesses ensure that they are legally compliant in matters such as health and safety and with employment obligations, and in the renegotiation of contracts with suppliers and customers.

David Jose, financial planner, Seer Green Financial Planning, Newport

This will provide continuing relief for those personal and corporate clients looking to reduce and repay mortgages and other borrowings, but with pre-general election uncertainty also not good news for savers, at least in the short term, this will be no different from the last five or more years of rock-bottom interest rates, where we have become used to helping clients find a return for their money, and is all the more reason to continue seeking and receiving sound financial advice, to try and make the best of every situation.