In an economy like the United Kingdom, inflation
is a very worrying term. Worrying, because this means that all the money a
person saved in a bank is gradually decreasing in value. Add to this the
decreasing interest rates to help grow the different sectors of the UK
industry, and you have yourself some big trouble.
However, both inflation and deflation have
something to do with the maintenance of the UK economy.
Inflation increases the
value and price of things while lowering the power of the sterling. Deflation
is increasing the power of the sterling, but decreasing the development and
growth of business, infrastructures and others.
The United Kingdom has the UK Treasury,
which oversees the printing and production of currencies circulating in the
United Kingdom. The UK Sterling is a fiat currency in itself.
A fiat currency is one where the government
and other parties have very slight influence over the frequency the UK Treasury
produces currencies. The Treasury must ensure that the currencies circulating
in the country are not inducing any inflation or deflation.
In reality, the Treasury’s goal is to find
the “sweet spot” that would enable good economic growth while retaining the
power of the sterling in the UK. In this way the economy can flourish while its
citizens are encouraged to spend just enough from their personal savings
accounts.
