Magazine article Marketing

The Chancellor's Budget Pledge to Reduce Inflation Spells a Hard Year for Marketers

Magazine article Marketing

The Chancellor's Budget Pledge to Reduce Inflation Spells a Hard Year for Marketers

Article excerpt

The Chancellor's Budget Pledge

The Chancellor's Budget pledge to reduce inflation spells a hard year ahead for marketers

The Chancellor's opening remarks in his Budget speech emphasised his commitment to reducing inflation as his first priority. John Major argued that inflation is "the most urgent problem facing us today".

Whether his judgement is right or wrong in terms of priorities, the fact that the Chancellor emphasises the need to cut inflation means a year of very slow growth in consumer markets. Interest rates will stay high, with no prospects of reductions until inflation is brought under control.

The scale of the problem facing the Government is set out in the chart below.

As can be seen, inflation in the UK is substantially above the rate in most other European economies. Inflation is already around 8% in the UK, compared to only 2-3% in countries such as the Netherlands and West Germany. Inflationary pressures do exist elsewhere in Europe, but the UK is starting from a weak position in comparison to other countries.

The UK has been historically a high inflation country. Even in the mid-80s, when inflation dipped to around 3%, in traditionally low inflation countries inflation was close to zero.

Short-term pressures on inflation intensify the need to squeeze the economy. Recent increases in mortgage rates will soon feed through the Retail Price Index. Over-spending by local authorities and under-funding by central government means that the poll tax will add 1. …

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