The deputy governor of the Bank of England, Paul Tucker, has restated the bank’s analysis that in the short to medium period, inflationary tendencies will cease to be a hindrance. The inflation rate had surged to 3.5% last month, beating the government’s forecast of 2%. The Bank of England, though, believes that a cumulative bearing of many factors could trim down inflation in the short to medium term.
The VAT rate being reset to its earlier levels of 17.5% has had a negative impact on the inflation. However, this trend is already seen as a short-term one. Also, it is expected that companies that are at present running below capacity, will switch over to full capacity operations once the economy improves. And this can be achieved without stressing heavily on wages or costs. As a result of all this, it is anticipated that the 3.5% inflation level will only be a temporary phenomenon.
Economists and financial analysts in the UK are hoping that Bank of England’s prediction turns out to be correct, as another attack of inflation could spell doomsday for the country’s economy.
