The UK has a problem with high rates of inflation (officially 10.1%), unaffordable energy prices (from Oct 1st, electric will be 52p per KWh and gas 15p per KWh), public sector pay demands of 10% and more, and the fact that hundreds of thousands of businesses are going to go bust this Winter due to unaffordable energy prices. But, but, they say, “we just need to freeze energy prices and all will be well”. Er, no it won’t. You see this fellow called Sunak who used to be The Chancellor of the Exchequer, and now wants to be Prime Minister, during the lockdowns, allowed Quantitative Easing (QE) by The Bank of England which injected £450 billion directly into the UK economy (furlough, eat out to help out, bounceback loans etc.). And, that is the exact recipe for high, out of control, inflation. It has been proven time and time again over many, many years in places like Weimar Germany and Argentina, not to mention Zimbabwe and now Turkey.
So, while most people can see clearly that freezing or lowering energy prices could solve the problems of inflation, collapsing businesses and even reduce pay demands, and while a lot of politicians are pushing this policy, the fact is that the only way to pay for this would be with a new round of QE and that means adding to inflation through increased money supply. Also, people seem to dismiss the fact that the high price of wholesale gas could last for years and that could mean £2 trillion of support is required to avert “disaster”. Yet a National Debt at £4 trillion or even £5 trillion would be game over for the UK economy. Even at today’s £2.4 trillion, money is becoming harder to borrow on the bond market and the pound has been steadily falling in value. The fact is the UK is not that far away from losing its reputation as a good investment. So, we appear to be at checkmate and we can do very little to avert the meltdown which has already started. I believe the best we can do is help those in most need through the benfits system, cut taxes to help workers and VAT to help businesses. It won’t be enough, but we are simply out of ammo.