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Is inflation set to be a problem in 2010?

The revelation that of non-food store prices in the UK increased by 1.4% last month, despite the fact that the UK is currently in recession, has astounded many analysts. This places massive pressure on the rate of inflation which is set to rise above the government's target of 2% in 2010. An increase in inflation, at a time when UK consumers are still struggling to pay their everyday bills, would be a disaster and almost certain to prompt a clampdown by the government.

The problem is that a clampdown to control inflation would reduce the amount of discretionary spending available and harm the ongoing recovery in the UK economy. This is a very difficult tightrope for the UK government to walk and one which is littered with danger and banana skins. Finding a balance is an almost impossible task because inflation is a serious risk but by cutting off the flow of funds into the UK economy there is a risk we could slip back into recession.

Despite many upbeat comments and many upbeat forecasts for 2010 there is no doubt that the next 12 months will be very difficult for the UK government and the UK economy. Aside from the problem of inflation and discretionary spending, the government will need to support consumer confidence which will ultimately decide how the UK economy performs in 2010.

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