Kate Andrews

‘There are obviously lessons to be learned,’ said Bank of England Governor Andrew Bailey at today’s House of Lords Economic Affairs Committee. It was a point he repeated many times over, in reference to the inflation crisis that has plagued Britain for close to two years now. ‘We have to learn lessons from the experiences we’ve had, of course we must... We have to work out what those lessons are.’ But despite repeating this sentiment over and over again, Bailey could not meaningfully come up with one good example of such a lesson, nor could he go into much detail on the mistakes the Monetary Policy Committee has made over the past two years.

Is the government ready to start cutting taxes? After taking the burden to a post-war high, it seems ministers are preparing to change direction – in one area, anyway. This morning Jeremy Hunt announced that the energy levy on oil and gas companies, known as the ‘windfall tax’, will come to an end in 2028 – a direct response to growing fears that the effective 75 per cent tax on profits was driving business and investment out of the country. Divestment from the North Sea has become a heavily contested topic. Keir Starmer announced that Labour would ban all new production in the North Sea, perhaps putting into perspective for the Tories just how far their windfall tax has shifted what is politically possible.

The government has been claiming since the start of the year that it's on a mission to ‘halve inflation’ – despite having virtually no control in this area. Still, this week Rishi Sunak ramped up the narrative when the latest set of data showed the headline rate falling from 10.1 per cent on the year in March to 8.7 per cent in April. It was false optimism. And it’s backfired. Markets quickly saw past the headline rate and looked at all the worrying news underlying it: mainly that core inflation actually rose, nearing 7 per cent on the year in April. Borrowing costs have spiked since then: 10-year gilt yields hit 4.37 per cent yesterday, now the highest in the G7. This hasn’t happened since the financial crash.

The government is delighted with today’s inflation update. Rishi Sunak released a clip this afternoon, talking about his government’s efforts to ‘halve inflation’ by the end of the year. ‘I know it’s still tough’ he says, but ‘the plan is working, and we are delivering.’ The problem is that it is not in his gift to deliver on his particular pledge. The economics in this video rival his chancellor’s coffee cup video from a few months back – in that they simply don’t add up. Politicians do not control inflation. They have no reliable mechanism for doing so. Windfall taxes do not bring down inflation, as he suggests in the video; and borrowing and spending at record levels definitely does not bring down inflation.  Sunak knows all this.

We learned this morning just how much the government is struggling to keep its promise to bring down the national debt. But news from the International Monetary Fund (IMF) will be lifting spirits in No. 10. Perhaps it can make good on another pledge: to grow the economy. The IMF has once again revised its figures for estimated GDP growth, and it’s good news for Britain. Following on from a fairly dramatic lift last month in which the IMF halved its recession forecast for the UK, but still predicted a contraction, the Fund has once again upgraded its forecasts, now predicting 0.4 per cent growth this year. Moreover, the UK has been lifted from last place in the G7 growth race, now ranking above Germany, for which the IMF predicts virtually zero growth.