Soaring oil prices are likely to have a neutral effect on public finances, Chancellor Gordon Brown said yesterday.
Mr Brown said oil companies' record profits would raise corporation tax receipts but at the same time other firms might have their profits dented by the rising cost of oil.
"It's effectively neutral at the moment," he said. "There is no huge revenue effect on the economy one way or the other."
Mr Brown said that, while high commodity prices had pushed up the cost of living, inflation remained under control despite rising above its two per cent target in July for the first time since the CPI measure was adopted in 2003.
Many analysts say it could rise further in the coming months due to higher utility bills.
But Mr Brown said he would this week reaffirm his message to the unions that wage demands had to be kept under control.
"We will not tolerate inflationary pay settlements," he said.
He is due to give a speech at the TUC Congress at Brighton tomorrow.
So far, despite fears, the oil rise appears not to be disrupting the West Midlands economy to any great degree, if the latest survey is to be believed.
Commenting on the release of August's PMI Business Survey Data, produced for the Royal Bank of Scotland by NTC Research, RBS economist David Fenton said: "The West Midlands economy remained buoyant in August.
"The business activity index may have edged down a notch, but it remained at an elevated level, maintaining the West Midlands' status as one of the UK's top-performing regions. This has yet to feed through to an increase in job creation, though there has been a marked decline in job losses in
2005. All told, another encouraging report on the state of play in the West Midlands."
The report signalled further expansion of business activity in the region's private sector economy in August, although the rate of growth eased from July.
The seasonally adjusted Business Activity Index registered 54.3, down from July's four-month high of 55.2. Service providers continued to register sharp growth of business activity. In the manufacturing sector, however, production declined for the second time in the past three months.
New work at West Midlands private sector firms rose at a robust rate in August that was broadly in line with the average for 2005 so far. The manufacturing sector continued to underperform relative to services.
The West Midlands private sector workforce declined for the fourth time in the past five months in August. The rate of contraction remained marginal, however. Where job losses were reported, they were mainly concentrated in the manufacturing sector.
At 58.5, the seasonally adjusted Input Prices Index was up for the second month running from June's near two-year low of 54.0, signalling the sharpest rate of input cost inflation, a reflection of higher oil prices. As a result firms in the region raised their output prices in August at the sharpest rate since May.