Inflation levels continue to soar
Inflation levels in the UK have been at the centre of concern for the Bank of England and other government sectors for some months now, having rocketed to way over the government’s target earlier this year, and showing signs that the rise is set to continue. The government target for CPI inflation is 2%, but for the past few months it has soared out of control. In May the level of inflation hit 3.3%, and this resulted in the governor of the Bank of England, Mervyn King, having to write to the Chancellor of the Exchequer, Alistair Darling, to explain why inflation levels had soared so high, and what was going to be done to bring them back towards target.
However, the situation has since become worse, with inflation recently soaring even higher to 3.8%. Many industry officials have said that they expect the rate of inflation to keep on rising over the course of this year, and 2008 could end with inflation being above 4%, which would be over double the government’s own target. Officials have said that the rocketing cost of petrol and food has pushed inflation up.
Although it is encouraging to note that inflation levels are still below the levels seen in the early 1990s, the rate of inflation still stands at its highest level of around eleven years at present. The government is now trying to find ways in which to try and rein in inflation levels, and unfortunately this could mean a restriction on wage growth and a halt on interest rate cuts.
Alistair Darling recently stated that wage restraint was required, stating: “We saw what happened in the past when inflation got out of control and people found that every penny they got in a wage increase was swallowed up by food and fuel prices going up. Whether you are in the private sector, or public sector, whether you are sitting in the board room or working on the shop floor, we cannot allow inflationary wage increases because that would mean that everyone, especially people on lower incomes, would suffer.”
In the meantime the Prime Minister, Gordon Brown, has been accused of simply ’shrugging his shoulders’ over the issue by the Shadow Chancellor, George Osborne, who has stated: “Inflation is now more than double the rate that Gordon Brown inherited from the last Conservative government.”
Vince Cable from the Liberal Democrats added his own thoughts, stating: “Gordon Brown is now facing the consequences of years of inaction over spiralling personal debt and the unsustainable bubble in the housing market. The Prime Minister bases his credibility on his economic record, yet it is now becoming startling clear he was asleep at the wheel.”
The governor of the Bank of England has already indicated that rising inflation means that further interest rate cuts may have to be put on hold, but there are also concerns now that the central bank could even end up increasing the base rate again in order to try and curb rising inflation, but this could then have a serious impact on the already struggling economy.
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