Inflation has cast a dark shadow over the UK for more than two years. The cost-of-living crisis has been the worst in memory, leaving millions facing a stark choice between heating their homes, and feeding themselves.
Runaway double-digit inflation has forced the Bank of England to drive up interest rates, hammering millions of homeowners as mortgage rates soar.
Higher borrowing costs have punished consumers and businesses. The UK fell into recession in the second half of last year, and while there are still jobs out there, many are low quality, and low paid.
Thankfully, inflation is now on the run. Having peaked at 11.1 percent in October 2022, it retreated to just four percent in January.
Analysts reckon it will fall to the Bank of England’s target rate of two percent in April, when regulator Ofgem cuts energy bills by almost £300.
Prices will still be rising, but at a much slower rate. Soon, they may actually start falling, a process known as deflation.
And this will mostly be down to China.
The West isn’t the only part of the world that is struggling today. The Chinese economy is in a right mess.
Beijing has inflated the mother of all property bubbles via endless bouts of stimulus, and it’s ready to burst.
At the end of January, property giant Evergrande Group went into liquidation owing a staggering £236billion.
That’s only the start. The authorities fear contagion throughout the Chinese property market, and its banking sector, too.
Strict Covid lockdowns wiped out of the Chinese economy, which hasn’t recovered. One in three young people are unemployed. Premier Xi Jinping’s iron rule is destroying freedom and innovation.
In January, China’s consumer prices fell at their steepest pace in more than 14 years. Producer prices also dropped.
The people are getting restive. So how is Jinping responding?
By cranking up the economy up to 11.
Chinese factories are pumping out as much as stuff as they can and because cash-strapped Chinese consumers can’t afford to buy it all, the surplus will be dumped on the West.
We’re about to be swamped with an awful lot of cheap stuff. It will arrive on these shores in a veritable armada of containerships and wreak havoc when it arrives.
We will enjoy the novelty of falling prices for a while. Then things could get sticky.
Here’s just one example of how it will hurt.
We used to have a thriving steel industry but it can’t compete with China. Last year, the world’s second biggest economy exported more steel than the UK, Germany, France, Italy, and Spain combined.
This year it could import more, at far lower prices, wiping out the remnants of the UK’s steel industry.
READ MORE: China plots to flood the West with cheap cars as Europe in ‘fragile’ position
Europe’s proud car industry cannot survive the tsunami of cheap Chinese electric vehicles (EVs).
Brits will love buying electric cars for as little as £8,000, but UK manufacturers won’t be able to compete and job losses will mount. French car market Renault is terrified.
Imagine that repeated across a swathe of industries.
Toys, games, sports kit, electronics, cars, furniture, clothes… anything that China makes is going to get cheaper, and as we know, China makes an awful lot of stuff.
The US government is alert to the danger and showing Beijing its teeth. Europe and the UK are more like rabbits, admiring the bright, shiny headlights of all those cheap EVs.
We can’t soak up all of the cheap stuff coming our way, so China will respond by cutting prices even further. Effectively, it will export its deflation to us.
Most of us will be thrilled to see the back of inflation but deflation could be worse. When it strikes, consumers will stop buying stuff today, knowing it’ll be cheaper tomorrow.
Sales will fall, businesses will fail, jobs will go. Which will hit sales in an endless downwards spiral.
The container ship armada isn’t quite as scary as the Spanish one unleashed in 1558, but we should still be seriously worried.
The most shocking thing is that we will probably enjoy it. At first.
