They say that what goes up must come down and in the case of current inflation it is certainly true.

As the causes of the recent spike in inflation — namely oil, gas and food prices — all fall back sharply, the rate of inflation will follow suit over the next eight months or so.

Unfortunately in the interim, the housing markets in Northern Ireland and Great Britain have collapsed and the worst global financial crisis in almost 80 years has taken hold.

What would have been a gradual fall in inflation from 5.2% to below 2% will now be both faster and steeper.

Households have completely lost confidence and businesses are struggling and fearful.

Consumer spending has plunged and business investment has all but evaporated.

These changes will accentuate the fall in inflation and make it greater than it would otherwise have been.

We seem certain to experience zero or close to zero inflation for the first time in the coming months. Therein lies the real economic danger now.

If inflation falls too rapidly towards zero it could become negative. This is the dreaded deflation or a general fall in prices. Deflation is to be avoided at all costs. Deflation is the enemy of growth and prosperity.

Just look at Japan, still just about the world's second-largest economy. Japan has seen deflation on and off for the past 15 years and cannot seem to escape from it.

People might think that falling prices give better value for money but in reality if prices fall for any length of time, businesses close down and people lose their jobs in their tens of thousands.

Nobody benefits from deflation except liquidators, receivers and administrators.

What is to be done then? Next Monday's Pre-Budget Report may well turn out to be the most important fiscal package in the UK since the end of World War Two.

The government is right to reflate the economy by cutting taxes on households and businesses.

Those who argue against a massive fiscal boost are being irresponsible — there is simply no alternative.

The only doubt in my mind is not about the need to boost demand but about whether the Government will be bold enough next Monday.

We are likely to see big cuts in personal taxation, big increases in tax credits aimed at lower income households and cuts in corporation tax to boost the profitability of businesses.

There is also going to be a large increase in public capital expenditure as some large infrastructure projects are brought forward to assist the construction industry.

Following on from next Monday's package, we can expect to see further large interest rate cuts.

If inflation is expected to fall very sharply and to a very low level, interest rates must be much, much lower.

There are risks in such a large fiscal boost and in lower interest rates. The weakness of sterling is one of these risks.

Lower interest rates and the expectations of lower interest rates are likely to keep sterling weak for some time but as in the past, a weaker sterling exchange rate will help, not hinder our economic recovery by boosting exports and deterring some imports.