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Can we discount the threat of inflation?

As Mervyn King, the Gov of the Bank of England, prepares to write a letter to the UK government explaining why inflation has risen to beyond 3%, is the Bank of England's dismissal of the threat of inflation fair?

Despite the fact that UK inflation has spiked above 3% and prompted a letter from the Bank of England to the UK government to explain the situation, Mervyn King has been fairly dismissive of the threat of inflation in the short to medium term. However, there are growing concerns that inflation, fuelled by issues with the UK exchange rate, could yet play a prominent role in the potential UK economic recovery.

While there is no doubt that "controlled" inflation is vital for any economy the problems occur when inflation runs out of control and eats into the value of money. The last thing the UK government, and the Bank of England, need at this moment in time is a surge in inflation which would reduce the spending power of consumers and reduce profitability for businesses. Price increases are unlikely to be supported at this stage of the economic revival hence the growing concern about the potential threat of inflation.

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