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Is the UK economy over the worst now?

Today's revelation that UK gross domestic product grew by 0.3% in the final quarter of 2009 against the initial forecast of 0.1% has given UK investors reason for hope in the short to medium term. However, not everybody is convinced that the UK economy has turned the corner and is back on the growth path, with even the Bank of England uncertain as to the economic future of the UK in the short term.

If the UK economy has turned the corner we could well see a run on inflation which could prompt the Bank of England to raise interest rates in the short term to alleviate this potential damage. While there are hopes that inflation, which spiked at 3.5% last month as against 2% the month before, will fall back sharply in the short term because of extenuating circumstances this cannot be guaranteed.

A stronger than expected recovery in the UK economy could become something of a double edged sword in the short to medium term if inflation is fed and cost of living rises faster than wages. It is proving very difficult to forecast the direction of the UK economy in the short to medium term and indeed good news, such as today's stronger than expected growth, could in a nightmare scenario lead to further problems for the UK economy.

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