GREAT BALANCING ACTS

John Boydell - Friday, 18 August 2023

As always, I’m not on anybody’s “side” politically, just trying to champion common sense.

Images can be very powerful and talk of a ‘balancing act’ conjures up a number of them: walking a tightrope; standing on a high window ledge; plates spinning on poles; and more. They all have something in common: they can fail or succeed. But all carry jeopardy. So it is with political balancing acts, some of which carry such jeopardy that they achieve ‘rock and hard place’ status, when it comes to decision-making. And yet, decisions are required, for doing nothing is seldom an option. Who fancies being the decision maker in balancing acts such as: global growth v global warming; feed the world v save nature; and human rights v economic reality?

We all have to make decisions, every day. For some, those too are between a rock and a hard place. Shall I eat or be cold? Shall I pay the rent or buy food? Shall I feel ashamed or not go to a food bank? And yet, those decisions must be made. The position becomes more complicated, and so more difficult, when making decisions for others. If you get it wrong, you cause more harm than was needed, even if some harm is inevitable. Imagine you are making decisions for millions, with all their different sets of circumstances that you can’t possibly take into account. There, the aim is to do the least harm to the lowest numbers but it’s necessarily and unsatisfactorily broad-brush.

Then there is will – the will to implement the decision, once made. The debate was agonising, with no good outcomes, just maybe one that’s less bad than another but it still needs to be implemented. If you’re making decisions for others, it requires courage, resolution and, likely, the need to explain why the thing decided upon needs to be done. Surely this can’t become more difficult, still? Well, yes and no – if politics is involved and an election is not far away, it can.

The country is gripped by #inflation. The headline rate has fallen this week but core inflation has not. This has led to record wage demands, often met or met in part, from employees, that have fed back into a continued problem. Meanwhile, international comparisons are not flattering, a recession is in prospect and government debt is at an all-time high, with unemployment now starting to rise. Inflation is exacerbating the painful cost-of-living crisis created by Brexit, Covid and the Russian invasion. The remedy against rising prices has been to push up interest rates to make money more expensive and, in turn, depress demand to push down on prices, as sellers of goods and services seek to maintain levels of business. The problem is if demand is depressed for too long, this can lead to recession, higher borrowing and more unemployment. Raising interest rates is tried and tested, the main anti-inflation tool for most countries and there is little argument that successive rate rises were needed (with many saying they were too little, too late).

Now, back to the balancing act thing, the rock and hard?place. We’ve arrived at it and there are no good options. Core inflation is high and stubborn. Additional rate rises to try to shift it downwards will bring likely recession and further misery to households and businesses, in many cases hanging on by their fingernails. Not raising rates is likely to mean inflation continues at high rates, bringing further misery to such households and businesses, while not necessarily staving off recession. It’s decision time for the Bank of England’s monetary policy committee, facing competing calls on what to do. Many commentators expect a rate rise to 5.5 or even 5.75 per cent. Others argue that the Bank, having failed to look into the future and leaving rate rises too long, is now looking backwards, rather than assessing the effect of its previous action, going forward. This is a tough one. Is politics helping? Not really for it’s on a timeline to the next election. On any reasonable reading, the Government’s record is not something that can be shouted about, when seeking votes, so something else is needed: some short-term headlines to draw attention to. Five pledges, perhaps. Two of those five are ‘halving inflation’ and ‘grow the economy’. They are, however, contradictory. The key tool to reduce inflation is in the hands of the Bank. Fiscal policy, otherwise, that impacts on growth is in the hands of the Prime Minister and Cabinet colleagues. That’s not what many voters will think, however, for the PM has implicitly said that he expects to be given credit for falls in inflation; it’s one of his pledges, after all. In reply to questions about further help?with the cost of living crisis, Mr Sunak’s mantra is that the Government can give the best help to citizens by bringing down inflation. As for growth, that must have looked like a tempting pledge to make. It had fallen to low levels, so the only way was up (all that the pledge promised) as the world adjusted to the Russian invasion, Covid receded and the [dishonestly denied] economic hit of Brexit, was dealt with by increasing familiarity. That pledge too is looking distinctly shaky: recession is not ‘growth’.

So, over to you, Governor of the Bank of England. What’s it to be, tame inflation or kill a recovery? I don’t envy you and your team but wish you well in deliberations. As for you, PM, you’ve gambled your inflation scapegoat (the BoE) position away by tying your party and yourself so closely to reducing inflation. You better hope the Bank calls it right. Good luck.