The UK is at “serious risk” of an inflation upturn, likely to be engineered by the authorities to help address its debt ratio, a leading economist has said.
Capital Economics managing director Roger Bootle told delegates at the National Association of Pension Funds (NAPF) Investment Conference he was worried the authorities viewed inflation as “part of the solution” to the debt crisis “rather than the problem”.
He said: “The inflation danger is what the authorities want. Inflation will stay low but do the authorities want this?”
And he warned if the authorities did deliberately engineer a “burst of high inflation”, this would keep interest rates down and subsequently force institutional investors into holding “squillions in UK government debt”.
Bootle said the only alternatives to inflation for addressing debt were growth, a default or austerity.
But he said the UK will not be able to get out of its debt situation through austerity alone and will likely have to grow itself out of debt or, as he feared, by inflation because “Brits don’t do default, we do it by the back door.”
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