Lib Dems warn of 1970s-style stagflation

  • Story by: Catherine Neilan
  • Magazine: InvestmentAdviser
  • Published Monday , June 09, 2008

The Liberal Democrats have warned the British economy is heading for 1970s-style stagflation, where stunted growth and inflation combine.

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The Lib Dem's shadow chancellor Vince Cable said recent figures that put factory gate inflation at 8.9 per cent were "dramatically high".

"It now seems we’re back to 1970s stagflation," he said.

Cable acknowledged the contrasting suggestions from different indication indicators "vindicates the caution the Bank of England is showing when cutting interest rates".

However, he urged policy makers to broaden the factors they considered when generating inflation figures.

"While retail and factory gate inflation are rising strongly, house prices are dropping fast," said Cable.

"Unless house prices are factored into the measure of inflation used by the Bank of England, insufficient attention may be paid to the deflationary factors in the economy."

His comments follow on from those made last week (see story), when he warned that data from the Organisation for Economic Co-operation and Development forecasting British gross domestic product (GDP) growth would almost half "confirmed all the worst fears about a deteriorating economy".

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