Two peaks warning 'inflation09: 39 01/03/2010, Tim Webb, the Bank of England, business, currency, economic policy, economics, general elections in 201

Two peaks warning 'inflation09: 39 01/03/2010, Tim Webb, the Bank of England, business, currency, economic policy, economics, general elections in 2010, public debt, inflation, news policy, the Guardian, Guardian Unlimited

Inflation peaks' feared as parts of the UK maintain fiscal policies in secret before the elections, says the auditing firm

The fact that the political parties to clearly explain how they will reduce the budget deficit of the risks of inflation "two peaks", according to a report today.

The warning comes at the start of a week that is expected to see the pound under renewed pressure on the currency markets, as new poll shows a parliament without a majority is increasingly likely and the Greek debt crisis undermines confidence in the economy of Britain.

The Bank of England Monetary Policy Committee (MPC) meets on Wednesday and is expected to set the cost of borrowing at 0.5%, despite the recent rise in inflation.

The MPC believes that inflation will fall back later this year, but the auditing firm BDO warns today that the UK could be affected by the peak of a "second" of inflation, because neither work nor conservatives detail how they will reduce the deficit £ 175bn before the general elections scheduled for May.

Because the companies are kept in the dark about tax policies, interest rates and financial stimulus packages, such as quantitative easing, which may be forced to cut capacity or be left out of the venture.

This means that when the economy strengthens, demand for goods and services rather than supply, resulting in price increases, a second peak of inflation and higher interest rates.

Without knowing the direction of future fiscal policy, also makes it harder for the Bank of England to make the right decisions, for example, over whether to expand its program of EUR 200 billion of quantitative easing, BDO added.

Alex White, a partner at BDO, said: "At the moment, the pre-election policy runs the real risk of setting the whole economy off course. The main political parties maintain their detailed plans for tax policy in secret and not disclose by how much, when and in what areas are going to reduce the deficit. This makes any final decision by the Bank of England monetary policy - including the resumption of quantitative easing - very difficult.

"Greater clarity about the depth and pace of fiscal contraction will Mervyn King [Governor of the Bank of England] the green light to plan for monetary policy that quickly synchronized with the fiscal targets of the next government. This, together with more security companies, will help eliminate the risk of inflation peaks.

Last week, King warned that the weakness of the euro zone recovery endangers the UK. "My particular concern at the moment stems from the global economy's health, and in particular, our main trading partner, the euro area," he said.

He added that the quantitative easing program would have to be restarted if the economy deteriorates in the coming months. It also had a pessimistic tone about the prospects for global recovery, and said the UK had "initiated a healing process" that would take some time.

The pound fell more than 1 cent against the dollar after his remarks. Analysts say the currency markets tend to keep the pressure on the pound, until they see detailed tax and spending plans of any government that takes power.

Government Borrowing
Economic policy
Inflation
Currencies
Bank of England
Economy
Elections 2010
Tim Webb


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