Difficult year ahead warns Chancellor

After consumer inflation soared to its highest level in a decade, Chancellor Alistair Darling has warned that there is no doubt the UK economy is slowing down and said this year will be difficult.

Mr Darling added that if the UK allowed inflation to take hold, it could be disastrous.

The government has predicted that the UK economy will grow by between 1.75% and 2.25% this year while Alistair Darling has forecast that the economy will grow by between 2.5% and 3% next year.

However, economists are predicting the rate of growth will be nearer to 1.3%. When questioned about the difference in the 2 forecasts, the Chancellor said he would be reviewing his growth figures again in the pre-Budget report due later this year.

An open letter from the Bank of England’s Governor, Mervyn King, to the Chancellor, confirmed that inflation had breached the 3% boundary.

The letter also indicated that rising food and fuel prices could lift inflation over the 4% mark this year.

The Chancellor said workers would have to be realistic in their pay demands, in order to combat inflationary pressures.

Speaking on Radio 4’s Today programme, Mr Darling said we have got to be vigilant in relation to all pay settlements, public and private.

It is believed by many analysts that interest rates will have to increase from the current level of 5% to manage runaway inflation.

City economists said that at the very best, all hopes of an interest rate cut this year have now been snuffed out.

The City is suggesting that at least 2, maybe even 3 quarter-point base rate increases are likely.

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