The rise in British inflation has been worrying and the independent Bank of England will need to set interest rates to control it, prime minister David Cameron said today.
He was speaking in a television interview before giving what was billed as a major speech in which he will set out his plans for reinvigorating an economy he believes has become over-indebted, unstable and too dependent on the public sector for job creation.
Inflation hit 3.7 per cent in April, nearly double the central bank's 2 per cent target.
"Policy set independently by the Bank of England, that is the right way to do things," Mr Cameron told GMTV.
"We have seen a slightly worrying increase in inflation in recent months so interest rates will be set to control inflation."
Earlier this week the OECD said the BoE must raise interest rates earlier than previously thought and no later than the fourth quarter of this year due to the gradual drift up of some measures of inflation expectations.
Mr Cameron, whose coalition government has set reining in a record peacetime budget deficit as its top priority, said reducing government borrowing would help ensure interest rates could be kept lower for longer.
Mr Cameron took power this month at the head of an unusual coalition between the centre-right Conservatives and the smaller, centre-left Liberal Democrats after an election ended 13 years of Labour Party rule.
In excerpts released in advance of the speech he was due to give later in northern England, Mr Cameron said the British economy had been heading in the wrong direction for years, was over-reliant on welfare and increasingly hostile to enterprise.
"As a country we have become indebted on an unprecedented scale. Our huge public debt is the clearest manifestation of our economic mistakes -- the glaring warning sign overhead telling us we have taken the wrong route," he said.
"We have been sleepwalking our way to an economy that is unsustainable, unstable, unfair and, frankly, uninspiring."
Referring to the financial services industry which drove British growth before being jolted by the financial crisis, Mr Cameron said the economy had become increasingly unbalanced "while we let other sectors like manufacturing slide."
He said he believed Britain could rebalance economic power, inject new life into the private sector and move to an economy built on savings and investment rather than debt.
"We have set out a series of clear, transparent benchmarks for our economy, from ensuring macroeconomic stability to creating more balanced growth, getting Britain working and ensuring our whole country shares in rising prosperity," he said.
Mr Cameron's coalition outlined this week £6.2 billion of spending cuts this year. Further action to tackle a deficit running at 11 percent of GDP -- just a few percentage points below that of Greece -- is expected in an emergency budget on June 22nd.
However, senior lawmakers from Mr Cameron's Conservative Party are unhappy at plans to raise capital gains tax to bring it close to income tax rates, a policy promoted by the Lib Dems.
Mr Cameron inherited an economy just emerging from deep recession. The Office for National Statistics said this week the economy grew by 0.3 per cent in the first quarter, up from an initial estimate of 0.2 per cent.
Reuters