Inflation soars - and Mandelson pledges for the chop?

The spectre of high inflation rears its ugly head, while the UK auto and nuclear industries may be in for a nasty shock.

Last Updated: 06 Nov 2012

There was a slightly alarming jump in the the headline rate of inflation in April: CPI hit 3.7%, up from 3.4%, its highest level in 17 months. As well as forcing Mervyn King to write his first letter of explanation to new Chancellor George Osborne, it's a reminder that high inflation could well await us here in the UK, after a period in which the Government's been pumping money into the economy like there's no tomorrow. Although by the sounds of it, the new occupants of the Treasury may look to renege on a few of our most recent commitments...

Apparently the rise, which was well ahead of City expectations, was largely due to higher costs for fuel, tobacco, food and women's clothing (you can't keep a good shopper down). The Bank has already said that it expects CPI inflation to stay above the target 2% for the whole of this year (forcing Merv to do a lot of letter-writing), so this won't be a complete surprise. But in recent months it has suggested CPI would return to its target level of its own accord in 2011, without the Bank needing to hike interest rates for a couple of years. The current speed of price rises (RPI, which includes housing costs, also soared from 4.4% to 5.3%) casts some serious doubt on that.

Although the prospect of soaring inflation isn't a welcome one, some reckon it's an inevitable consequence of all this money that's been pumped into the economy lately. But it's clear that the purse strings are going to be a lot tighter under the new coalition; with £6bn of instant cuts due to be announced next Monday, the Treasury is currently running its slide rule over every bit of spending signed off since January - which according to today's Times, includes the loans doled out by Lord Mandelson to prop up the car and nuclear industries. This includes money earmarked for Vauxhall, Nissan and Ford, amongst others - some £750m in total.

The Treasury seems to be playing down the chances of this money being reclaimed, saying that it's only unnecessary spending they want to stop (and nobody's suggesting that it was a bad idea to entice these jobs to the UK - if we hadn't, someone else would). But the impression is that Labour's industrial interventionism (Mandelsonism, let's call it) may be a thing of the past. Given the ability of previous governments to pick business winners, that's probably no bad thing.

In today's bulletin:

Inflation soars - and Mandelson pledges for the chop?,
BA gets temporary respite as court blocks strike
Vodafone rings in the profits as emerging markets flourish
Paying the cost to be your own boss
Graduates get the right of reply

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