When George Osborne decided to raise VAT, more months ago than he will admit, he did not imagine that he would be compounding the worst inflation in Western Europe. Prices are currently falling in Ireland, flat in Germany and rising only slightly throughout the rest of the Eurozone and America. But in Britain, inflation is back with a vengeance. This week, millions of shopkeepers raised prices by far more than the 2.1 per cent needed to accommodate the new tax. They did so not out of greed, but in preparation for a year of rising heating, staff and transport costs.
The shopkeepers realise what Mervyn King, the Governor of the Bank of England, does not: that Britain is once again in an inflationary spiral. The Retail Price Index stands at 4.7 per cent. The Consumer Price Index will probably soon hit 4 per cent — twice the Bank of England’s target.
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