because consumers are spending more, perhaps because interest rates have fallen, taxes have been cut or simply because there is a greater level of consumer confidence. It could be because firms are investing more in the expectation of future economic growth. It could be that the government is boosting spending on defence, health, education and so on. Or it could be because there is a boom in UK exports to overseas. Whatever it is, it will be inflationary if demand grows faster than supply.
Earnings rising above factor productivity.
Cheaper credit, following a reduction in interest rates.
Excessive public sector borrowing.
A housing boom creating equity withdrawal and a positive wealth effect.
Changes in the savings ratio.A depreciation of the exchange rate increases the price of imports and reduces the foreign price of UK exports. If consumers buy fewer imports, while foreigners buy more exports, demand in the UK economy will rise. If the economy is already at full employment, it is hard to increase output and prices are pulled upwards.
A reduction in direct or indirect taxation: If taxes are reduced consumers will have more disposable income causing demand to rise. A reduction in indirect taxes (taxes on goods and services such as VAT) will mean that a given amount of income will now buy a greater real volume of goods and services.
Rapid growth of the money supply as a consequence of increased bank and building society borrowing if interest rates are low and consumer confidence is high
Rising consumer confidence and an increase in the rate of growth of house prices - both of which would lead to an increase in total household demand for goods and services
Faster economic growth in other countries - providing a boost to UK exports overseas. Remember that export sales provide an extra flow of income and spending into the UK circular flow. Exports are counted as an injection of aggregate demand