With reference to the UK, examine and discuss the methods open to a Essay - 1

With reference to the UK, examine and discuss the methods open to a government to control the rate of inflation within an economy - Essay Example According to the Office for National Statistics (ONS) inflation in the UK rose to 2.2 per cent in January 2008, 0.2 per cent above the governments two per cent target. Retail price index (RPI) inflation rose to 4.1 per cent in January, up from four per cent in December. Although rising utilities bills and an increase in producer price index (PPI) inflation will keep upward pressure on inflation, the drop in demand for consumer products - such as clothing, footwear and electricals - seen in January could offset the higher food and fuel prices, analysts believe (Office of National Statistics 2008). Balancing the state budget is viewed by the economists as the way to help ease inflation. More efficient way is to keep the state budget ath the surplus and to hold expenditures at a low level. Budget can also be balanced by cutting taxes, and then trimming expenditures enough to make outgo match income. Tight money is probably the anti-inflationary weapon that is most widely used by capitalist economies today all around the world. By tight money it is meant holding down the ability of banks to make additional loans, so that household or businesses borrowers find it much more difficult--and much, much more expensive--to take out a loan. Tight money certainly slows down the pace of economic buying and producing. To a lesser extent it also slows down inflation, although there is no iron law that says prices must fall just because less is being produced or bought. Mainly the result of tight money is to intensify competition in a sluggish business setting, and that may bring prices down or stop them from going up: the bargains in air fares may be an example of this. The difficulties with tight money are is that the impact of credit stringency is very uneven--dealing serious blows, even death blows, to small business; leaving big business, with its powerful credit sources, relatively unscathed. Another problem is