![]() To bring things back into balance would require a much more significant monetary tightening than hitherto thought remotely necessary. The moment of truth came last autumn, when the Bank of England belatedly recognised that the inflationary pressure was not of the “transitory” variety after all, and would therefore just fade away, but was in fact the result of a much older law of economics – too much money chasing too little supply. In a sense, that’s what the Bank of England wants to happen by pressing down on demand, it hopes to bring spending back into line with supply.īut having allowed the vehicle to gain too much speed, and lost its authority in the process, the Bank now necessarily risks a too violent application of the brakes, and a consequent pile up as it tries to slow things down again. In private enterprise, jobs are anecdotally not nearly as abundant as they were until recently. Many of the advertised job openings, moreover, are in the public sector, and particularly the health service. Retail spending has remained surprisingly strong, and tax revenues – as good an indicator as they come of what’s really going on in the economy – have so far this financial year come in higher than the Office for Budget Responsibility was expecting.īut these are all backward looking indicators, which give few clues as to what is about to happen with strongly rising mortgage costs and the greater incentives to save rather than spend that stem from high interest rates. This change is admittedly not yet apparent in the official data, which continues to show a historically very high, if now declining, level of staff vacancies. Higher interest rates are now biting hard splashing the cash is fast giving way to a mentality of job insecurity and belt-tightening. ![]() If this happens, it would represent a marked shift away from the prevailing mindset of the last two years, where the story has in the main been about employee retention, acute staff shortages and low unemployment. Hiring freezes or even compulsory redundancies may soon be the order of the day. My own admittedly not very scientific or comprehensive ring around corporate leaders suggests that much of UK business is now planning for a significant reduction in demand. ![]() Up until a few months ago, it was still just about possible to believe that the Bank of England might yet engineer a soft landing, or in other words, manage to slow demand by enough to take the heat out of inflation, but not by so much that it crashes the economy. Having liberally supplied the booze on the way up, central banks are now in danger of making the opposite mistake on the way down – that of overkill as the hangover sets in. Only belatedly did they realise their mistake. Instead they did the opposite, with another couple of bottles of vodka thrown into the mix even as the party began to rage. As we now know, today’s central banking fraternity failed to heed his advice. William McChesney Martin, a former chairman of the US Federal Reserve, famously said the central bank’s role is to take away the punch bowl before the party gets going.
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