GRIM forecasts from the Bank of England say Britain’s economy will shrink every quarter next year as we sink into recession — while inflation will rise above 13 per cent.
The Bank’s response indicates its utter indifference to the plight of ordinary households and the inadequacy of its policy tools to meet the current crisis.
Raising interest rates will not curb inflation, since inflation is not being driven by cheap credit. Making the cost of borrowing higher to reduce spending is largely irrelevant to the factors behind today’s crisis.
Inflation is being driven by disruption of supply. Oil and gas prices were rising before the Russian invasion of Ukraine — as supply failed to keep pace with the recovery in demand following the global Covid-19 pandemic — but the war and retaliatory sanctions have hugely accelerated the increase.
Spiralling food costs are linked to the rising cost of energy — but also to disease, war and climate change.
Heatwaves have hit olive crops in Spain and Italy, driving up olive oil prices. The battles raging across Ukraine have disrupted exports of sunflower oil and cereals.
Targeted Covid lockdowns in China have disrupted the trade in manufactured goods, while the impact of reduced gas flows from Russia on Germany’s manufacturers is increasingly severe.
Add in the new cold war and Washington’s attempts — mimicked, as usual, by Britain’s toadying political class — to “decouple” from China.
Then the ability of monopolistic corporations to increase profit margins at our expense — as Unite has shown, profits in the FTSE 350 are 73 per cent higher than just two years ago.
To be fair to the Bank of England, this is not a crisis that can be resolved using monetary policy. But its decision to try means more pain for working-class families.
Raising interest rates will make borrowing more expensive at a time when soaring prices are forcing more people into debt.
It will raise mortgage repayments at a time when wages are falling further behind inflation. It will exacerbate the recession the Bank predicts, meaning businesses fold and people lose their jobs.
This will further concentrate ownership. Meanwhile, those owning all that wealth will be rubbing their hands with glee at Andrew “you shouldn’t get a pay rise” Bailey’s interest rate raise, which will see assets grow more quickly in value.
The Bank’s decision is a disaster. It underlines the folly of “independence” for a national bank, whose policies should be determined by people democratically accountable to the public. Not that better ideas are currently on offer from those who supposedly are.
The enormous suffering rising costs are imposing on the vast majority can only be addressed politically. Government can intervene in the market to control prices.
Indeed it sets price caps in sectors like energy, and could seriously limit them, as has been done in France.
If that drives “energy suppliers” who simply trade energy they do not produce to the wall, take them into public ownership. Better still, take the whole sector into public ownership so the obscene profits being posted by BP, Centrica, Shell and others flow into the public purse and can be used to keep bills down and fund a just transition to renewables.
The complete absence of demands for price controls or public ownership from the main Westminster parties is an indictment of a political system rigged to serve the rich alone.
The two Tory leadership hopefuls’ claims that aggressive tax cuts will somehow unleash growth are a fantasy. Sir Keir Starmer’s vague waffle about “rebooting” the economy without addressing the key questions of wages, price and profit is a miserable cop-out. Our leading politicians, like our bankers, have nothing to offer.
It is up to the labour movement to deliver what government and business won’t. A co-ordinated fightback on pay — and a high-profile campaign to put the socialist solutions our country needs back on the political map.
