UK investors are in a "state of cold turkey" as they attempt to come to terms with the low inflation and low growth rates.
Baring Asset Management believes the UK corporate sector will fall into a battle for the survival of the fittest, with the largest companies coming out on top.
Baring's UK equity fund manager Richard Buxton says the falling prices will boost real incomes, with consumers gaining at the expense of the companies.
To combat the decline in profits Buxton believes companies will endeavour to become the lowest cost producers and to grow their capacity. These economies of scale will lead to the mergers and consolidation with the stronger getting stronger and the weaker falling by the wayside.
Baring says knowledge will lead to a competitive advantage, it therefore recommends investing in stocks of pharmaceuticals, advertising, publishing, information technology and fund management companies.