Yes, it is inflating it's way out of debt. As prices go up, taxes rise, and the money owed shrinks in real terms. Secretly, an inflation rate of 6% - 9% would suit the treasury very well. I can see inflation hitting that sort of figure once the great British pound sell off begins in 6-12 months time. The FTSE will rise though, so even urchins like us can make something out of it.