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Will the threat of inflation stifle economic recovery?

While in general inflation is something which many people look to avoid, in moderation it is a vital element of any economy. However, the December inflation figure of 2.9% is still causing concern within political and financial circles because the Bank of England will need to address this problem sooner rather than later, something which could stifle economic recovery in the short term.

The problem for the UK government at the moment is the fact that sterling is under so much pressure because of the UK budget deficit and the general state of the economy. This has increased the cost of importing vital goods and vital services which has fed through to the inflation figure and which could, if left unattended, see inflation rise yet further in the future. Despite the fact that the Bank of England is confident that inflation will fall in the short term there are many people who have a different view.

The problem now is that if interest rates are increased to control inflation this would increase the cost of credit to the consumer and business arena thereby placing businesses under more pressure and reducing disposable incomes. This is a very difficult balancing act but one which the Bank of England and the UK government will need to get right!

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