The drip-drip of dire economic data is showing no sign of drying up, with UK inflation hitting 9 per cent today, a 40-year high.
The new figures underscore the triple threat of soaring prices, sluggish growth and falling real incomes.
The pound fell 0.9 per cent against the dollar in response, erasing much of yesterday’s gains following strong labour market data showing unemployment at record lows.
Even this good news was bad. Economists are worried that a tight labour market will make the inflationary boom worse, as intense competition for staff puts upward pressure on wages which are rising less quickly than inflation.
Policymakers are under huge pressure to soften the blow.
On the monetary side, the Bank of England’s governor, Andrew Bailey, is in the firing line.
Speaking on LBC, Lord King, who governed the Bank during the financial crisis, was damning about its recent performance.
He said the BoE and other central banks around the world had made “serious mistakes” in dealing with inflation, including “printing a lot of money that wasn’t needed” during the pandemic.
“The idea that interest rates of 1 per cent are going to have much impact… is really very strange,” he said.
It comes after Bailey’s less than reassuring appearance in front of MPs on Monday. He said he felt “helpless” because of the external nature of the inflationary shocks and that Britain faces an “apocalyptic” rise in food prices.
Tory MP Liam Fox, a firm critic of the Bank, accused Bailey of “complete hyperbole” and suggested he was passing the buck.
“It’s a diversionary tactic from a bank whose primary statutory duty is monetary stability and who patently failed to do their day job properly,” he said. Fox echoed King’s point, blaming rampant inflation on “excessive quantitative easing in order to protect employment.”
On the fiscal side, Rishi Sunak is resisting calls for an emergency budget, but knows he must do something.
The Chancellor is drawing up a two-pronged response, according to The Times. First, a one-off boost to the warm home discount in July from £150 to up to £600 to take the edge off soaring energy bills which accounted for three-quarters of March-April inflation rise.
This would be followed by tax cuts in his autumn Budget – possibly bringing forward the 1p cut to the basic rate of income tax due to take effect in 2024.
And the politically tempting windfall tax on oil and gas giants is still on the table. In case you missed it, here’s Maggie Pagano on why it’s such a bad idea.
Will this be enough?
Nearly three-quarters of voters think the government is handling the economy badly, including over half of Conservative supporters, according to the latest YouGov poll.
It’s hard to believe these measures will placate those who think the government could and should be doing an awful lot more.