According to a report from the British Chambers of Commerce, no less than 58 per cent of all firms are planning pay freezes this year.

It seems that while many believe inflation is the inevitable result of all this government spending and quantitative easing, the news from the workforce says the opposite.

If products get cheaper because we are able to produce more for less effort, that is a good thing. Ironically, however, it can lead to problems if we then cut back on spending, because we become used to falling prices, and expect prices to fall.

But at the moment, falling prices are caused by lack of demand.

The retail price index fell to minus 4 per cent last month, the lowest level since 1960.

If prices are falling, it seems like a good thing. Affordability improves, we feel better off.

But if wages start falling too, then the benefit of falling prices is lost, and a downward spiral can result.

According to data out this morning, three months of improvements in mortgage lending went into reverse last month. According to the British Bankers Association, mortgage approvals fell by 6.8 per cent in March.

It said that fluctuations are inevitable during a recession.

Many had seen the data suggesting a mild pick up in mortgage lending in previous months showed that quantitative easing was working, and that it was only a matter of time before inflation returns.

As the Japanese experiences shows, fighting deflation is very difficult, and is not just a mater of printing money.

They say that once inflation gets a hold, fighting it will be akin to squeezing toothpaste back into its tube. The snag is, once deflation does get a hold, fighting that is akin to squeezing toothpaste back into its tube while you stand on one leg, blindfolded, saying the alphabet backwards to the tune of the Archers.

© Investment & Business News 2013