RPI set to fall

Pay deals could slump next year with the prospect of inflation going into the negative in late 2009. Concerns about deflation have now begun to haunt economic forecasts, with a predicted drop in the retail prices index (RPI) to -2% on the back of falls in mortgage interest rates, petrol prices and house prices. For pay deals linked to inflation the consequences could be dramatic, with settlements, particularly long-term deals linked to inflation, producing little or nothing in comparison with 3-4% deals that have been common this year.