UK Economy Slows, Bush Not Blamed ... Yet

The UK economy is obviously slowing and amazingly the BBC does not blame Bush yet.

Chancellor Alistair Darling has said that there is "no doubt" the UK economy is slowing and has warned it will be a "difficult year" ahead.

Rising food and fuel prices were hitting consumers, he told the BBC.

Speaking a day after consumer inflation jumped to the highest level in 10 years, he also called for restraint in pay demands.

Mr Darling said it would be "disastrous" if the UK "allowed inflation to take hold".

"There is no doubt our economy is slowing down," he told the BBC's Today programme.

This puts the Bank of England in a quandary as to what to do about it. You have the combination of rising inflation, rising unemployment and a slowing economy all at the same time. In the 70's we called it "stagflation". So, do you try to expand the money supply and cut interest rates to eliminate the unemployment (but causing further inflation) or do you contract the money supply and raise interest rates to curb inflation (but increase unemployment a further slow the economy)?

Actually, the best possible solution to these economic ills is not public policy, but to rely on the private market forces to increase productivity (thus shifting the aggregate supply curve out and to the right) to grow the economy out of this troubled time. However, the socialized health care and education systems are significant impediments to doing that. The more government regulation and taxes you have, the steeper the aggregate supply curve gets which makes it harder to shift it out and increase productivity. It's easier for people to just go on the dole and say "take care of me."

I think the UK is in for some very tough economic times in the future.