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The Aim Of This Report Is To Provide Information, Measures And Suggestions To The Chancellor Of The Exchequer On What And How To Deal With The Inflation In Uk

4157 words - 17 pages

Inflation in United KingdomInflation is the process of making addition to currencies not basedon a commensurate increase in the production of goods.-Federal Reserve Bulletin (1919)

Inflation in United Kingdom

Inflation is the process of making addition to currencies not basedon a commensurate increase in the production of goods.

-Federal Reserve Bulletin (1919)


Executive Summary

The aim of this report is to provide information, measures and suggestions to the Chancellor of the Exchequer on what and how to deal with the turmoil of inflation in recent days in the United Kingdom.

In this report we define inflation and describe type of inflation, cause of high rates of inflation and explain the measures taken by the United Kingdom to overcome it. We will analyze the "Costs and prices", including those of oil, food, wage increase and other commodities. These commodities have now resulted in unanticipated rise of inflation because of high demand and their low supply. In accordance with the recent surveys, In England, the Consumers price index has increased from 2.1% in December 2007 to 4.7% in August 2008 which is above targeted inflation of 2%.

Measures to control inflation can be increasing the interest rates which results in reduction of currency in circulation but its consequences can be a threat to deflation and credit crunch. Therefore, to overcome this other measures which are fiscal policy are suggested; these includes appreciation of exchange rate, income policy, supply side policy and expectation of inflation which could be used to control inflation both in short term and long term.

Table of Contents

Item Page

iExecutive Summary

11. Introduction

22. Inflation definitions

33. Causes for inflation

33.1 Costs and prices.

3.1.1 Oil Price 3

43.1.2 Food Price

43.1.3 Wage Increase and Unemployment

53.1.4 Other commodities

4. Controlling inflation 5

4.1 Monetary policy 5

4.2 Fiscal Policy 6

4.2.1 Increase direct taxes 6

74.2.2 Decrease Government spending

4.3 An appreciation of the exchange rate 7

4.4 Income policy 7


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