Inflation is taxation without legislation declared the great economist Milton Friedman.

If so, then with Consumer Price Index (CPI) inflation running at 4% and the Retail Price Index (RPI) now at 5.1%, the UK is starting to resemble one of the worst places for tax in the developed world.

The news comes in the same week the central bank left interest rates resting at 0.5% for a record 23 months in a row – and reinforcing the precarious nature of the so-called recovery.

If inflation persists at such high levels obviously living standards in the UK will begin to slide backwards.

This is even more worrying perhaps given wages in some sectors (those that have managed to hold on to jobs) have either gone backwards in absolute terms or have been frozen in a bid to reduce the need for redundancies.

It all sounds a bit bleak, but with the consumer price index now the highest it’s been since 2008 it’s hard to appreciate why the Governor of the Bank of England, Mervyn King, does not appear overly ruffled and is confident inflation will recede.

Perhaps he’s trying to retain the confidence of the markets in UK PLC? After all the system is built on confidence, as we saw when the whole house of cards almost came tumbling down during the credit crisis.

All this aside, it’s hard to be too upbeat when it comes to the UK.

Growth is anaemic at best (a disputed 0.5% contraction in Q4 2010 that the Chancellor managed to blame on the weather) and everywhere one looks it appears prices are rising.

Beyond the fact, petrol spiked at an all-time high of £1.27 a litre in January, or that food prices, energy and commodities are rising – not to mention the fact VAT is now 20% – but businesses are also facing unprecedented rising costs.

A raft of new employment and pension legislation, in the form of a pronged assault from both within the UK and from the much maligned European technocrats in Brussels, means businesses are facing some very trying times indeed, against a backdrop of relatively weak economic growth.

If the economy fails to grow at a reasonable pace in this first quarter of the year then it will be difficult to argue against the fact the UK is facing a cycle of stagflation.