Downing Street Says » Economy/Inflation

» Tuesday, June 17, 2008

Economy/Inflation

The PMS said that, in Cabinet this morning, the Chancellor explained that the UK economy was currently facing three major global shocks to credit markets, oil markets and food prices and that all countries were facing these issues.

The Chancellor also spoke about inflation and that, as Mervyn King had said in his letter to the Chancellor this morning, we had seen world agricultural prices increase by 60%, global oil prices rise by more than 80% and wholesale gas prices increase by 160%. The three shocks on credit markets, fuel prices and food prices were affecting all economies at the moment. However as the Chancellor explained to Cabinet, the UK remained relatively well placed to deal with these shocks; employment levels were high and the Organisation for Economic Cop-operation and Development had recently forecast the UK to be the second fastest growing economy in the G7. As the Chancellor had pointed out in his reply to Mervyn King, despite the increases in inflation, inflation in the UK remained lower than in the Euro area where it rose to 3.7% in May, and lower than in the US where it now stood at 4.2%.

Asked for the Prime Minister’s thoughts regarding Mervyn King’s gloomy outlook on the economy, the PMS said that the Chancellor had written a two-page letter on the subject of inflation and that that set out the Government’s position.

Put that the Chancellor’s letter to Mervyn King did not make clear whether or not the Government welcomed price stability objectives, the PMS said that nothing had changed regarding the Government’s objectives, intentions or desires in relation to inflation.

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