Families' spending power would increase with deflation - but an actual rise in spending is unlikely, according to the CEBR.
Deflation conditions, where retail prices decline over a long period of time, are not likely to lead to an increase in spending and will prove bad for the economy.
Respected financial group the Centre for Economics and Business Research (CEBR) said that people would save rather than spend as falling prices set in - while other factors caused by deflation, including unemployment, would ensure that retail sales remained depressed. The analysis also suggested that price increases would be sluggish for years to come.
The cebr issued the comments in the wake of new official inflation figures. These showed that the Consumer Prices Index (CPI) dropped from 2.9 to 2.3 percent between March and April, while the Retail Prices Index (RPI) - including property prices - fell from -0.3 to -1.2 percent.
In its latest Inflation Report, the Bank of England suggested that CPI would bottom out at 0.5 percent towards the end of the year. In last month's Budget, the chancellor of the exchequer said that he thought RPI would reach a nadir of -3 percent in September.
Charles Davis, economist at the CEBR, said: "The signs are there that the cost of living is starting to drop back which will be a bit of a boon to consumers […] you will tend to benefit from the falling cost of living which is a boost to the spending power of the average UK household.
"That's not to say that that will necessarily translate into increased spending because there are other factors that are probably leading to people saving more. You also have to factor in rising unemployment and uncertainty about the economic outlook."
