United Kingdom: inflation



The graph shows how inflation, as measured by the Consumer Prices Index (CPI), has changed in the UK since 1989.

Inflation remained low for much of the 2000s before rising significantly during the 2008-2009 recession, after the Bank of England reduced interest rates to a record low of 0.5 per cent and began £200bn of quantitative easing, vastly increasing the money supply. Inflation rose again in 2011 due to further spikes in global commodity prices, the depreciation of sterling and a rise in VAT from 17.5 per cent to 20 per cent.

Inflation now stands at 5 per cent – the highest rate in the European Union – but is expected to fall significantly in 2012 and 2013.

In December 2003, the Bank of England adopted an inflation target of 2 per cent against the previous one of 2.5 per cent. For every quarter that inflation exceeds this target, the governor of the Bank of England, Mervyn King, must write a letter to the Chancellor, George Osborne, explaining why.