The inflation surge is now upon us. The CPI rate again “surprised” to the upside – Britain is the only major economy in the world to have inflation doing this. But given that the Bank of England’s printing presses have been working overtime to fund a fiscally irresponsible government then little wonder things are different here. To understand just how unusual the UK situation is, consider the below graph: despite suffering the longest recession in G20, we have one of highest rates of inflation in the developed world.
The next few months will see this push higher, potentially reaching 4 percent in March and busting the 2 percent target. Without the temporary VAT cut, inflation would never have dropped below the 2 percent target rate the Bank of England is mandated to follow – so, in a way, the VAT cut helped Brown justify turning on the Bank of England’s printing presses.
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