WELCOME TO STAGFLATION: UK Economy Shrinks While Inflation Set To Rise 4%

Tuesday, January 25, 2011
By Paul Martin

Zarathustra W.
Jan. 25, 2011

The UK economy seems to be quietly slipping back into recession. UK economy contracted 0.5% in the fourth quarter compared to the consensus of 0.5% growth. The previous quarter growth has also been revised down from 0.8% to 0.7%. On an year-on-year basis, GDP grew 1.7%. Looking at the release, most components of the economy is shrinking. Very ugly number indeed, but of course, they can blame the weather.

The situation in the United Kingdom seems to be very tricky. David Cameron and his coalition government has been determined to cut deficit, which will certainly hit the economy. The value-added tax (VAT) hike is not helping the situation as the Great Britain is having a stubbornly high inflation, now at 3.7%. With the VAT rise in-place, inflation is set to rise to 4% or more this month.

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