Don’t wait until mid-September to address inflation
04 August 2022
By Stephen Haddrill, Director General
The Bank of England’s new inflation forecast will be a shock to many. Now pushing well into double figures, inflation looks more and more embedded. Indeed, the Bank itself believes it could take two years to get back to low single figures. The forecast of falls in business investment and recession are also worrying given the UK’s already low levels of investment and productivity.
It seems unlikely that the Bank has the tools to cope with all of this on its own. Interest rates alone cannot be a sufficient answer. Fiscal policy, both tax and spend, needs to be deployed.
We cannot afford to wait until mid-September, whatever the difficulties of taking action in the midst of a leadership election.
Tax cuts can boost business and consumer confidence. However, spending has a more direct and immediate impact, especially if it is directed at helping the less well off. Part of any tax cut is just saved in the near term, and cuts do not help the poorest and most vulnerable who pay little if any direct tax.
It is important that Government and financial authorities build public trust through their policies. If there is pain to be suffered, this can be endured, but only if people believe in the solutions being pursued.
Our industry has an important part to play. In uncertain times, asset finance is particularly beneficial to business as it preserves cash and reduces risk. And at the same time lenders have well established mechanisms for helping people struggling with loans to manage their way out of trouble.
For the long term we need policies that enhance our ability to weather external shocks. Growth has been held back by supply shortages for two years. We cannot be self-sufficient as a country, that would be far too costly, but we need to look at reducing the risks of shortages of key goods.
Published 04 Aug 2022