The UK economy is teetering on the edge – so why is the Bank of England, not Rishi Sunak, the one to act?

The rate rise is bad enough – but what the Monetary Policy Committee had to say about the future for UK plc is even worse, argues James Moore

Interest rates are rising and there may be more to come. Bad news for Rishi Sunak (Reuters)

How to describe reading the Bank of England’s latest missive? Perhaps like watching the finale of the Japanese horror film Ringu, which is one of the most chilling moments in movie history? That about does it.

The Bank raised rates for the fourth time in a row, to 1 per cent, the highest level for 13 years. Three of the nine-member Monetary Policy Committee (MPC) voted for a half per cent raise, which would have had it following in the footsteps of the US Federal Reserve.

Perhaps they were afraid that the entirety of the City would react by seeking out the nearest duvet with a view to hiding under it if they had gone that far.

A not unreasonable response given what the committee had to say. There won’t be much festive about Christmas this year. Inflation is now expected to hit 10 per cent during the final quarter of the year. And the thing about that peak forecast? It just keeps on rising.

Rates will do the same thing as the Bank seeks to put a lid on “second order” inflation. It can’t do anything about the primary causes of the surging prices Britain is currently experiencing. They are energy prices, exacerbated by the conflict in Ukraine. Oh, and the activities of a certain coronavirus in China. Remember that? Covid is every bit as capable of killing people, and mucking up the economy in the process, as the bloody invasion of Ukraine by Russia.

See what I mean about horror? This is grim stuff indeed. We’re probably going to have to get used to seeing pointy headed economists in front of TV cameras talking about “stagflation”. That is high inflation, low growth (if any) and high unemployment.

But wait, at least the last of those isn’t with us. That is not expected to change in the near term. Phew! Trouble is, further on out it’s a different story.

The R word – recession – looms large. That may yet cool some of the Bank’s ardour when it comes to future rises.

The MPC is currently carrying the economy on a high wire. It is teetering. A fall is coming. The trick is to ensure the landing is a softish one, on a net, as opposed to a hard crunch on the cold floor where bones get broken.

Most of the Bank’s forecasts are, it admits, pretty suspect and the risks to them, currently are not on the upside.

Silver linings? Well, one may be the effect all this has on the Conservative Party’s poll ratings, assuming things get as nasty as feared, or worse.

The government has been struggling with the cost of living crisis, perhaps, in part, because its leading lights have never been in a position to experience what it’s like trying to manage on a budget with no slack. That is even before, to go back to my Ringu reference, the horror of the inflation monster jumped out of the TV screen with murder on its mind.

This has led to some egregiously crass and stupid comments. Boris Johnson’s response to a 77-year-old riding the bus all day to keep warm was to claim credit for London’s free bus passes for pensioners. Which he didn’t even introduce. So much for empathy.

Of more concern than gaffes like that, however, is Rishi Sunak’s disgracefully cynical strategy of sitting back and doing nothing much to prevent the wind blowing UK plc out of the MPC’s shaky hands and on to that hard floor.

He has a lot more power to help than the Bank does. But he appears to feel that two-and-a-half years to the next election is too long for the Tories to get any credit for a save. He deserves to pay a price for that.