Chancellor tells Channel 4 News the VAT increase - identified by the Bank of England as a contributing factor to today's CPI increase - was essential in dealing with the budget deficit.
Chancellor George Osborne said that despite today's figures, which showed a 0.5 per cent jump in inflation to 4.5 per cent in April, there are factors which are now pushing down inflation.
He said this year's VAT hike to 20 per cent, identified by Bank of England Governor Mervyn King as a significant contributor to the rise in inflation, is an essential part of the Government's strategy in dealing with the budget deficit.
"In terms of its impact on inflation, the Bank Governor is very clear that the VAT rise has a temporary and diminishing impact on inflation," the Chancellor told Channel 4 News Economics Editor Faisal Islam.
On the subject of the UK's sluggish growth, Mr Osborne noted that he had inherited "the largest budget deficit in the developed world" from the previous Labour administration, as well as a devalued currency.
"The big news at the moment in the British economy is that manufacturing is growing at a good rate, exports are up 15 per cent in the last year, and 400,000 private sector jobs have been created," the Chancellor said.
Please wait while this video loads. If it doesn't load after a few seconds you may need to have Adobe Flash installed.
The Chancellor refused to be drawn on the possibility of the UK nominating Gordon Brown as a possible replacement for Dominique Strauss-Kahn as Managing Director of the International Monetary Fund.
"As it happens, Gordon Brown has neither asked me directly or indirectly to be considered for the job. So I'm at the moment focused on making sure we get the best person for the job."
Last month David Cameron suggested that Mr Brown's record meant the former Labour Prime Minister was not sufficiently competent to lead the IMF.
Read more in Fasial Islam's blog
Discussing the eurozone crisis, Mr Osborne cited the UK and Spain as examples of European countries who had demonstrated that if you produce "a credible plan of winning market confidence", you can achieve a measure of financial stability.
He was at pains to stress that the UK will not be part of any future eurozone bailout. "The good news from the British point of view is we are not going to be part of that permanent bailout mechanism.
"So I think the British Government has also been able to extricate us, as taxpayers, from future bailouts."
17 May 2011