Interesting times
There's been quite a lot of economic news flying around over the past couple of days, including the surprise new today that retail sales were up, year on year, so we thought we'd bring you a quick summary.
On Monday the Governor of the Bank of England, Mervyn King, was obliged to write a public letter to the Chancellor of the Exchequer, as required by law when UK inflation goes over one percent above the target rate of two percent. King's letter admitted inflation of 4.1 percent for November.
In the letter, which you can see in full here, King says that while commodity prices - which had been the main cause of inflation earlier in the year - have dropped sharply since September and VAT has dropped (a bit), as has economic activity in general, the weakness of Sterling has meant that imports are costing more and thus inflation is still above target.
However, King says he thinks that if he's obliged to write another letter to the Chancellor in 2009 it's more likely to be because inflation is over a percent below the target. He also warned that in 2010, when the VAT cut is reversed, there will be a consequent jump in inflation.
In his letter of reply, the Chancellor essentially accepted all King's points and said keep up the good work.
