Manufacturing industry champion Russell Luckock looks at the build-up to the Budget.

With Budget Day looming on March 12, the Chancellor will be busily at work, trying to prepare a presentation that will please his master, and hopefully, balance the books.

Government policy clearly states that inflation must be kept at a maximum of two per cent, and herein lies the problem.

There are a lot of inflation busting prices in the pipeline which will bring tremendous pressure on this requirement.

Component manufacturers in the West Midlands are fiercely resisting the steel makers' bid to lift basic prices by some 10 per cent. This, coupled with advances in the cost of power, let alone Council Tax impositions, will have the effect of raising factory gate prices.

Chinese factory gate prices are currently escalating by some 15 per cent, which coupled with their government's intention to revalue the remnimbi (RMB) upwards by some 10 per cent, giving a dockside lift of some 25 per cent, will inevitably see substantial increases in a wide range of goods in our nation's showrooms.

The smart money is on similar increases in 2009, as Chinese workers press for more money to achieve a better standard of living.

In this country, every housewife knows that food prices in the supermarket are becoming more expensive by the month. This trend is set to continue.

By way of illustration, John Dracup, of the meat processors St Merryns, tells me that the ex-abattoir price of beef has risen by 30 pence a kilo in the last six weeks, an unheard of jump in such a short time. The reason for the increase is shortage of supply, coupled with continued demand.

The supply problem is due to so many farmers going out of milk production due to non-existent returns, and switching to growing crops for a market where demand outstrips supply.

The farming community is having to come to terms with massive increases in the costs of both animal feed and fertilisers to the tune of some 85 per cent. This fact, coupled with the refusal of the supermarkets to pay a fair price for milk, is the reason for seeing farms change their way of life. One South Devon farm has ceased milk production after some 300 years, and moved on to arable crops to earn the daily bread.

In the past, when this country has run short of beef, we have always imported from Argentina. Not this time however, as their farmers switch to growing biofuels. The latest statistics show that cattle production has dropped by a massive 30 per cent, and they have little to export.

It will only be a matter of time before unions start demanding increases in pay which will match the inevitable increase in the actual cost of living, not the Government's target. Such demands will surely lead to an increase in interest rates as the Bank of England struggles to comply with its mandate. Perhaps in all the circumstances, the recent reduction of 0.25 per cent was a little premature and may be too political.

Alistair Darling is faced with a jumbo sized problem, as he grapples with falling tax returns, and a massive Budget deficit. All the stealth taxes put together will not balance the books, not helped by the Office of National Statistics' sensible ruling in relation to Northern Rock last week.

I have a nasty feeling that there has to be much more belt tightening in the Budget, which will in no way assist the cash strapped mortgage payer.

Who would be a Chancellor?