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It has dawned on the government that last week’s mini-Budget might have been a bit too one-sided: £70 billion worth of extra borrowing and not a single mention of spending cuts or efficiency gains has seen borrowing costs spike (up by 0.3 per cent just today). As James Forsyth reports on Coffee House, this afternoon’s announcement that a ‘medium term fiscal plan’ will be announced next month is an attempt by the Treasury to reassure markets – and convince them that fiscal responsibility has not totally disappeared from this government’s agenda. Emphasis is being placed on previous promises to make sure debt falls as a percentage of GDP in the coming years. But what about the other side of the coin?

Rising interest rates is a key pillar of Trussonomics. Liz Truss herself has always stopped short of saying this explicitly, pointing fingers instead at the Bank of England for its failure to curb spiralling inflation. But the economists advising her have made clear, in no uncertain terms, that they think interest rates have been too low for too long.  Right from the start of her leadership campaign, Truss was far more vocal about her criticisms of the Bank; a point made even clearer once she entered No. 10 and her Chancellor Kwasi Kwarteng set up bi-weekly meetings with the Bank’s governor Andrew Bailey. With this new pressure being applied on the Bank, many thought it would make history today by implementing its first 0.

In the end, it could have been worse. The Federal Reserve might have followed Sweden’s lead, with a whole one point rise in interest rates, or it could have even decided to short-circuit the whole process and go straight for a 1.5 per cent increase. Instead, it opted for the safer course, imposing a 0.75 per cent increase in rates much as the market expected. Even so, it made one thing absolutely clear. It is not going to let up in its battle to bring inflation back under control – and the rest of the world will have no option but to follow its lead. The markets were primed for another rise in rates from the Fed chairman Jay Powell today. That was precisely what he delivered. American interest rates will go up to 3.

This morning’s surprise update from the Office for National Statistics shows headline inflation at 9.9 per cent on the year to August, down slightly from 10.1 per cent in July. While consumer inflation remains at a 40-year high, the drop from double digits back into single digits has the optimists whispering: might inflation have peaked? This update is no doubt good news, but this is likely to be a brief moment of calm in an ongoing storm. The slight fall in headline inflation has primarily been driven by easing fuel prices, as the cost of oil has been on a downwards trajectory. That at least is an early sign that global markets are starting to fill in the gaps created by the West’s decision to shun Russia’s crude oil supplies.

My predecessor Christopher Fildes looked at exchange rates through a cocktail glass: three negronis for the Italian lira equivalent of a tenner, good; a $2 martini for £1, even better. That latter ratio applied briefly 30 years ago when, he wrote, the favoured tipple ‘brushed against my lips like an angel’s kiss’. It recurred during the financial crisis of 2007-08, when no one was really able to enjoy it, and has never been seen since. On Monday, as Liz Truss was crowned, the pound dipped below $1.15, in sight of its 1985 all-time low of $1.05. ‘The prospect of …parity versus the dollar,’ said Bloomberg, ‘is becoming ever less outlandish.’ What cocktail of misfortunes brought us to this?

Long gone are the days when politicians and experts dared to claim inflation was simply ‘transitory’. Now it’s hang-on-to-your-hats as prices spiral faster than anyone predicted. This morning the Office for National Statistics reveals that headline CPI inflation hit 10.1 per cent on the year in July. This double-digit figure takes inflation to a 40-year high, outpacing consensus yet again, which was 9.8 per cent. That figure means all those horrors that have been discussed for months have become more immediate: the instability that comes with spiralling prices, the risk of stagflation, increasing fears of recession as consumers grow more cautious, not to mention the very real fear that people will struggle to afford basic necessities.

‘What’s worse, they’re paying the profits to shareholders,’ said a grey-haired woman ahead of me in the Co-op queue. ‘Bloody shareholders,’ her friend of similar age and class spat back. I guessed they were talking about Centrica, parent of British Gas, which at a time when domestic energy bills are rising 23 times faster than wages (as Frances O’Grady of the TUC puts it) has announced half-year operating profits of £1.3 billion, up from £262 million last year – and the restoration of a penny-per-share interim dividend after a three-year gap. Both ladies looked likely to be beneficiaries of pensions nourished by dividends from the likes of Centrica, Shell and BP.

The euro is nearly level with the dollar. It should not matter in theory, because of the relatively low share of the US in EU trade. But it does in practice. Some predict that the euro will fall below parity. There is a straightforward explanation for this: the war in Ukraine and unpredictable Russian gas supplies to Europe make the dollar a safe haven for investors. On top of this, US interest rates offer a higher return on investment. But it is not only the dollar. Looking at the broader picture, the European Central Bank's measure of the euro's real effective exchange rate against 42 partner countries confirms this trend towards a new historic low: really bad news comes from the combination of the euro's falling value, the energy crisis, and the return of inflation.

Is anything anywhere getting noticeably better – economically speaking – or at least less bad? Are commodities and manufactured goods beginning to move more freely, for example, to ease the demand pressures that are stoking inflation? It’s good news that the number of container ships anchored off Los Angeles-Long Beach waiting to unload has fallen from more than 100 in January to around 20 at the latest count, but I note also that dockers there are demanding a 10 per cent pay rise. Drewry’s World Container Index – the handiest indicator of global shipping costs – has fallen 32 per cent from its peak last autumn, but remains five times higher than in the autumn of 2019.

Interest payments on the national debt rose 70 per cent last month to £7.6 billion (compared with a year earlier) – largely because of the impact of inflation on income paid to holders of index-linked gilts, which are inflation-protected government bonds. More worryingly, this was 49 per cent more than the official forecast made in March by the Office for Budget Responsibility (OBR). It suggests the OBR’s forecast that the government will have to pay £87.2 billion in interest payments (a colossal sum) may be too low, especially since the ONS is not factoring in the most recent inflation figures in its calculations of the monthly bill.

As Boris Johnson tries to limit pay rises to bring down inflation, ministers have no explanation for why planned rises in the state pension and benefits would be less inflationary than increasing teachers’ and nurses’ pay. The government is attempting to limit public sector pay to 3 per cent, while allowing pensions and benefits to rise to around 10 per cent.  This is not to argue against protecting the poorest through the standard indexation of pensions and benefits. But it is to say that Mr Johnson’s pay policy is confusing. And he cannot pretend there is no pay policy. Even refusing to engage directly in pay talks with rail workers – despite owning the network and funding services – is a policy.