Wednesday, October 19, 2011

UK's Cameron admits inflation is too high

Inflation in Britain is too high but has been caused by rising world food prices, the fall in the value of sterling and a rise in sales tax, Prime Minister David Cameron said today.

Britain's consumer price inflation rate rose more than expected to 5.2 percent in September, the highest for three years and more than twice the Bank of England's two percent target.

Cameron's Conservative-Liberal Democrat coalition government, slashing spending to cut a record budget deficit, has come under criticism for a lack of economic growth and rising unemployment at a time when prices are rising quickly.

"Of course, inflation is too high. The principle reasons for inflation being so high are world food prices, the depreciation of sterling, and yes, there was an effect from the increase in VAT," Cameron told parliament.

The coalition has hiked VAT sales tax to 20 percent from 17.5 percent as part of measures to cut a deficit running close to 10 percent of national output.

The government has looked to the Bank of England to support the economy through loose monetary policy while it tackles the deficit, although there has been hardly any economic growth in the last year, putting the deficit goals at risk.

The central bank restarted its asset purchase programme this month to boost growth, although some analysts fear that quantitative easing has done little to increase demand and only driven inflation higher.