The UK inflation rate again “surprised” to the upside today, registering at 1.5%. As the above chart shows, the UK now has by some margin the highest inflation rate in G7. Were it not for the temporary VAT cut – which takes about 1% off the current CPI rate – the rate would be moving quickly above the Bank of England’s target of 2%. It would seem that the deflation threat, used as justification for the Bank of England deciding to finance the Government’s deficit this year through printing money, has not transpired. A severe recession and rise in unemployment has hit the economy, but this seems to be one where wages stagnate but the prices of what we consume continue to rise.
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