Can we really ignore the threat of inflation?
As the UK economy continues to give mixed signals and inflation shows signs of coming back to life there are concerns as to whether we should be attacking inflation first or ensuring that the UK economy is in a position to grow in the short, medium and longer term. Can we really ignore the threat of inflation and tackle this at a later date?
While inflation can eat away at the value of money and wreck any economy in a fairly short space of time, it would appear that at this point in the UK economic cycle we need to focus more upon pumping money into the financial system and getting the UK economy back on its feet. Even though Mervyn King, the Gov of the Bank of England, believes the inflation will fall back in the short term the fact that it has touched 3.5% is still a major concern.
If the UK government was to increase base rates and reduce the money being pumped into the system this would risk a potential relapse for the UK economy. At this moment in time we cannot afford to take our foot off the gas because a double dip recession would cause more longer lasting damage than a short-term bout of inflation.
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