Today’s Monetary Policy Report from the Bank of England was a little like the weather: a bit of sunshine, some very dark clouds, but mostly everyone wondering when things will get better.
The bad news first: interest rates have risen by 25 basis points to 4.5 per cent, the highest level since 2008. Inflation is not expected to fall to target until 2025, while food inflation will continue to outpace the headline rate.
On the other hand, the UK is no longer forecast to go into recession, the economy is expected to surpass its pre-pandemic peak by the end of the year and unemployment is now set to be lower than initially predicted.
Perhaps it’s because I got caught in the lunchtime downpour, but if I were Rishi Sunak, I would be concerned about today’s report, most of all about inflation, which is looking awfully sticky.
The Bank does expect inflation to fall to 5.1 per cent by the end of the year, but that is significantly up from 3.9 per cent in its February forecast, placing the prime minister’s pledge to halve inflation at risk.
I’ve been thinking a lot in recent days about just how misplaced comparisons between Sunak and another Conservative prime minister, David Cameron, are. The two share some superficial similarities – both attended top public schools, exude a managerial air and are (or was, in Cameron’s case) more popular than their party. But the differences are stark and worth drawing out.
Some are ideological. For example, Cameron took on his party to secure equal marriage, while Sunak is a social conservative. Cameron led the Remain campaign in the EU referendum, Sunak is a committed Brexiteer.
Others are external. Cameron benefited by following an unpopular Labour prime minister, Sunak succeeds a calamitous Conservative one. Cameron enjoyed a pint of Greene King IPA with Xi Jinping, Sunak is operating amid a reemergence of great power competition and a decoupling with China. And perhaps most critically, Cameron governed in an era of low inflation and near-zero interest rates, while Sunak has double-digit price rises and 12 successive rate hikes to contend with.
There was clearly a market for Cameronism in the early to mid-2010s. But back then, the UK’s economic system was predicated on EU membership and deepening globalisation. Foreign policy was based on an unshakeable transatlantic relationship. Growth remained weak, but favoured domestic constituencies benefited from schemes such as Help to Buy, while all borrowers enjoyed low interest rates.
So Sunak is right to jettison that type of politics which, though recent, already feels like it belongs to a different age. But it is not clear his alternative prospectus can survive the toxic combination of high inflation and rising interest rates.
Elsewhere in the paper, Joe Biden has sparked a diplomatic row by saying he flew to Ireland to ensure “the Brits didn’t screw around”.
In the comment pages, Ben Judah warns that the impact of the AI revolution on geopolitics is going to be terrifying. Sarfraz Manzoor says he grew up in a house without books — it was the BBC that educated him. While Emma Loffhagen howls at the spiralling rents that have forced her to move back home.
And finally, even if you’re not a gamer, you’ve probably heard of Zelda. Vicky Jessop reports on how the fantasy series has taken over the world.
