Will inflation levels get worse before they get better?
The financial headlines has recently been filled with news about the soaring rate of inflation, and this comes as no surprise given that the rate of inflation has soared to its highest level since records began in 1997. For some months now the rate of inflation has been steadily rising, and it has been soaring above the government’s target of 2% for some months now. For July the rate of inflation hit an all time high of 4.4%, which came as no surprise to many who had already predicted that the rate of inflation would keep on rocketing.
Officials have stated that part of the reason why inflation has soared out of control to this degree is the high cost of food and petrol, which have both contributed to these rocketing inflation levels. However, as far as the governor of the Bank of England, Mervyn King, is concerned, things are set to continue getting worse, and earlier this week he gave a very gloomy assessment of the state of the economy.
King said that over the next twelve months the economy was likely to come to a stop in terms of growth, and reports claim that recession was not ruled out by the governor. He also said that inflation levels are likely to soar to 5% or beyond, and indicated that they could even rise to around 6% given the soaring price of food and petrol. In previous reports industry officials and officials from the central bank had predicted that inflation could rise to 4% by the end of the year, but obviously this has already been surpassed and officials have now had to revise their predictions.
Officials have said that this situation of stagflation, which is a combination of soaring inflation and a stagnant economy, has not been seen since the dark days of the 1990s, and from what King has said the nation needs to prepare itself for worse to come. King’s bleak speech earlier in the week sent the pound tumbling against a range of global currencies, and whereas just a few months ago £1 would buy $2, this also tumbled, touching on $1.85 earlier in the week.
In his speech King stated: ‘The adjustment of the UK economy to higher commodity prices and a more realistic pricing of credit will be painful. The next year will be a difficult one with inflation high and output broadly flat…I think with broadly flat output, it’s bound to be the case that there is a possibility of a quarter or two of negative growth.’
He added: ‘There is a feeling of chill in the economic air. The British economy is going through a difficult and painful adjustment to higher energy and commodity prices, and in banking, credit and housing markets.’
Tags: control, degree, Banking, stagnant economy, Stagflation, economics, Economy of the United KingdomAnd he concluded: ‘We will come through this. We will return, if not to the ‘nice’ decade, then at least to one that is not so bad.’
