Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Biden is about to spend vast sums. Rishi knows inflation is a new risk

Biden is about to spend vast sums. Rishi knows inflation is a new risk

Latest London news, business, sport, showbiz and entertainment from the London Evening Standard.

This time Boris Johnson’s optimism seems well placed. He said this week that he expected the economic bounce back from Covid-19 to be “much stronger” than many expected. I agree, and I haven’t seen the forecasts which the Office for Budget Responsibility will publish tomorrow.

In general, across the western world, that’s the case. In part that is because of the overwhelming firepower which central banks and treasuries have thrown at this crisis — at a speed and with political unanimity we didn’t see last time. For all the talk of division, the US Congress has backed rescue packages and the eurozone has acted as one. Here in the UK there was no argument about moral hazard — everyone agreed that the Government had to step in to help businesses facing ruin and people facing unemployment through no fault of their own.

It’s also the case that, historically, pandemics have been much easier to recover from than banking crises. It may not feel that way to a restaurant or conferencing business or outdoor activity centre, or the many thousands added to unemployment rolls. But this time we don’t find ourselves in the catastrophic situation we did a decade ago when the very arteries of the economy — the credit channels — were blocked and would take years to clear. Nor is this the permanent impairment to trade that an event like Brexit represents. Covid-19 will pass.

The great news from the Health Secretary yesterday that vaccines are working at reducing hospitalisation and death rates here in the UK holds out the prospect that there is an end in sight across the world. This is reflected in stock markets, which in places like the US are higher than their pre-pandemic highs.

So now we need to listen to Larry Summers. Really? You wouldn’t have heard me say that a decade ago. Back then, Summers was the chief economic adviser to Barack Obama and he was telling us we needed to spend more money. Although we disagreed, it was hard not to be impressed by the sheer force of his intellect — and self-confidence in it. As it happens, despite the rhetorical clash of stimulus and austerity, both the Obama administration and Coalition government here followed near identical fiscal paths over the first five years of this decade. So what is Mr Summers saying now?

He says we risk spending too much — especially in the US. There the Biden administration is about to spend the equivalent of £1.3 trillion, on top of a huge package passed in the last weeks of the Trump presidency. I was pleased to see the new President elected, I know his economic team and I can see why they want to act decisively and before the political window for action closes on them. Still, it’s a staggering sum of money, and it doesn’t just plug the hole in output now left by the pandemic — it’s three times bigger than the hole. Most of the money goes straight into people’s pockets to spend, many of whom have already been saving money this last year. Summers warns “there is a chance” that spending on these levels “will set off inflationary pressures of a kind we have not seen in a generation”. Most of us have forgotten the pain of inflation — although I got a short, sharp reminder in 2011 when it hit five per cent and gave me the hardest time of my chancellorship.

Britain is especially exposed to a bout of inflation. Already the yields on gilts are rising — i.e. the interest rate we pay on our debt is going up. More of that debt is index-linked than our peers. If inflation goes up, the Treasury will have to find many billions of pounds extra a year just to service our borrowing — dwarfing the budgets we spend on some public services.

Rishi Sunak knows this, and knows it could derail the Government. He’ll keep spending through the tail end of lockdown, but then he’ll start to turn the spending taps off. He’ll raise taxes too, as I had to. I chose VAT while he’s reported to be looking at business tax. But all taxes are ultimately paid by individuals. However he does it, we have to start repairing the finances so we’re ready for the next crisis. If we hadn’t 10 years ago, we’d be in a far bigger mess than we are currently. Now we can see that the sun is going to shine, we have to start fixing the roof again.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
House Republicans Move to Defund OECD Over Global Tax Dispute
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
Intel Reports Revenue Beats but Sees 81% Rise in Losses
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
CEO Resigns Amid Controversy Over Relationship with HR Executive
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
Tulsi Gabbard Unveils Evidence Alleging Political Manipulation of Intelligence During Trump Administration
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Trump Announces Coca-Cola to Shift to Cane Sugar in U.S. Production
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Air India Pilot’s Mental Health Records Under Scrutiny
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
Moonshot AI Unveils Kimi K2: A New Open-Source AI Model
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Bitcoin Reaches New Milestone of $116,000
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
×