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UK's Cameron defends policies as inflation rises

UK's Cameron defends policies as inflation rises

British Prime Minister David Cameron defended his government's attempts to boost the country's sluggish economy as official figures out Tuesday showed that inflation jumped to its highest level in two-and-half years last month.
Cameron rejected claims by lawmakers that Britain is in danger of falling back into recession, saying his Conservative-led coalition inherited a massive debt from the previous Labour government that had to be tackled.
"We need to rebalance the economy," he told senior lawmakers in one of his three annual appearances before the so-called Liaison Committee. "We need to see the growth coming from manufacturing, from investment, from exports, rather than just believing we can re-flate the economy on the basis of property, government spending and a consumer boom."
Cameron has pledged 80 billion pounds ($130 billion) of spending cuts and 30 billion pounds in extra taxes to trim Britain's huge deficit, but opponents say the austerity measures risk sending the country backward.
The economy grew 0.5 percent in the first quarter of the year, but that only made up for a drop of the same size in the last quarter of 2010, leaving growth largely unchanged.
And, while growth stalls, inflation is soaring.
Consumer price inflation rose to 4.5 percent in April after a surprise fall to 4 percent in March, according to official statistics released Tuesday that will renew pressure on the Bank of England to raise interest rates.
Ratings agency Moody's warned earlier this year that Britain's triple-A credit rating could be at risk if slower growth makes it harder for the government to rein in the budget deficit, while the Bank of England cut its growth forecasts for this year to around 1.7 percent.
"It feels to me a lot like we're not achieving growth, we're getting massive inflation," said Labour lawmaker Margaret Hodge as she pressed Cameron on the issue. "It feels like an era of stagflation where the people who are suffering are the savers."
Cameron argued that Britain's growth in the first quarter was ahead of the United States and some southern European countries, including debt-wracked Spain and Portugal.
"We are going through an enormously difficult process of rebalancing an economy that did have the most over-indebted banks, the most over-leveraged households, the most over-borrowed government, the most out-of-control immigration," he said. "That's not a sustainable model for the economy," he said.
Britain's inflation rate has been 4 percent or more _ double the official target _ every month this year, and the Bank of England has forecast that it might rise to 5 percent before falling back. The April rate was the highest since September 2008 when it hit 5.2 percent.
The Office for National Statistics said higher prices for air transport, alcohol, tobacco and natural gas offset a a decline in gasoline and diesel prices.
"Continuing volatility in energy and commodity prices makes it difficult to be sure when inflation will return to the target," Bank of England Governor Mervyn King said in a letter he is obliged to write to the Treasury when inflation is more than 1 point above or below target.
The Bank of England's rate-setting Monetary Policy Committee has kept its base lending rate at an all-time low of 0.5 percent despite worries about inflation. A majority of the committee believes inflation is driven by rising commodity prices which are beyond its control, while a fragile economy still requires the stimulus of low interest rates.
"A rate rise is the obvious solution to rapidly increasing inflationary pressures," said Max Johnson at Currency Solutions, "but with the U.K. economy in the state it is, the most obvious solution could also be the least sensible."
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Robert Barr in London contributed to this story.


Updated : 2021-04-17 13:17 GMT+08:00