Rishi Sunak’s helicopter drop makes the bank of England’s life easier
Skip to main content
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
  • Epaper
  • More
    • Subscribe
    • COVID-19
    • Bangladesh
    • Splash
    • Videos
    • Games
    • Long Read
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
The Business Standard

Thursday
July 07, 2022

Sign In
Subscribe
  • Home
  • Economy
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
  • Epaper
  • More
    • Subscribe
    • COVID-19
    • Bangladesh
    • Splash
    • Videos
    • Games
    • Long Read
    • Infograph
    • Interviews
    • Offbeat
    • Thoughts
    • Podcast
    • Quiz
    • Tech
    • Archive
    • Trial By Trivia
    • Magazine
    • Supplement
  • বাংলা
THURSDAY, JULY 07, 2022
Rishi Sunak’s helicopter drop makes the bank of England’s life easier

Bloomberg Special

Marcus Ashworth, Bloomberg
28 May, 2022, 09:25 pm
Last modified: 30 May, 2022, 08:26 am

Related News

  • Bank of England tells lenders to brace for economic storm
  • Bank of England joins the scream-if-you-wanna-hike-faster gang
  • Bank of England isn't committed to being 'forceful', Pill says
  • Bank of England set to raise rates again as inflation heads for 10%
  • UK cost of living crisis to peak later this year, BoE to press on with rate rises

Rishi Sunak’s helicopter drop makes the bank of England’s life easier

By adding fiscal support to the economy, the UK government has freed the central bank to focus on curbing inflation

Marcus Ashworth, Bloomberg
28 May, 2022, 09:25 pm
Last modified: 30 May, 2022, 08:26 am
The guy on the right just did a solid for the guy on the left.Photographer: Alex Kraus/Bloomberg
The guy on the right just did a solid for the guy on the left.Photographer: Alex Kraus/Bloomberg

A difficult task has just become slightly easier for the Bank of England, following Chancellor of the Exchequer Rishi Sunak's 15 billion-pound ($19 billion) relief package announced Thursday. The measures, including energy bill subsidies for every UK household plus one-off grants to pensioners and welfare recipients, mark a spectacular U-turn by the government as the cost-of living crisis worsens. But the arrival of the fiscal cavalry eases the potential impact on growth, freeing the central bank to focus on curbing a surge in consumer prices that threatens to savage the financial health of the most needy. 

At its most recent policy meeting, BOE Governor Andrew Bailey raised the prospect of the economy stalling, setting the scene for a dangerous economic backdrop given that inflation is already at a 40-year high of 9% and is set to reach double figures in the coming months. Sunak's rediscovery of the magic money tree, missing in action since the pandemic relief program ended, belatedly undoes some of the economic damage inflicted by the tax increases he introduced earlier this year on companies and workers. If the government is alive to the risk of recession, the central bank can get on with the job of tackling price increases. 

In a newspaper interview published earlier this week, BOE Chief Economist Huw Pill made clear that there is some way to go in this current rate-hiking cycle, which has seen policy tightened at four consecutive central bank meetings, although he was careful to stress acting too quickly also poses risks. While the prospect of 50 basis-point increases seems unlikely, the strength of the UK labor market, with the unemployment rate at a 40-year low of 3.7%, is likely to persuade policy makers to raise the official bank rate to 1.25% at its next meeting on June 16. Dan Hanson at Bloomberg Economics expects the rate to climb to 2% by November, at which point he expects a halt; the futures market sees even more action into next year.

I'm less confident that the BOE will hike another four times this year, unless consumer confidence and spending rebound after hitting a brick wall this spring. Moreover, the S&P Global composite purchasing managers survey collapsed to 51.8 this month, down from 58.2 in April and barely above the 50 level that separates expansion from contraction. Economists had predicted a reading of 56.5. If evidence of an economic slowdown continues to build, policy makers could well pause mid-summer to assess the impact of their repeated rate increases.

Sunak is financing his fiscal largesse with what he called a "temporary, targeted energy profits levy" — aka a windfall tax — on oil and gas companies. It's designed to raise 5 billion pounds, although it is far from clear what the final tax take will be as there are offsetting investment incentives for the firms involved. Thursday's helicopter money-drop is equivalent to 0.6% of gross domestic product, and pretty much all of it is (by design) likely to be spent on energy bills rather than saved by consumers. This means other spending that might have been put off will go ahead, adding a mild contribution to the current inflation impulse. 

Still, political needs must. While this fiscal splurge brings short-term relief for those most in need, it is far from all that will be needed to defend society's most vulnerable members from the coming financial storm, so more government intervention is likely either later in the summer or at the November budget. By acknowledging its fiscal responsibilities, the government has in effect freed the central bank to act independently in setting monetary policy. Given the current febrile economic environment, that's a welcome development. 

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. Previously, he was chief markets strategist for Haitong Securities in London.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.

Analysis / Top News / World+Biz

Rishi Sunak / Bank of England

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Prime Minister Sheikh Hasina. Sketch: TBS
    Do not punish whole world to punish one country: PM to US
  • File Photo: State Minister for Power, Energy and Mineral Resources Nasrul Hamid/UNB
    Nasrul Hamid hints at fuel price hike amid global crisis 
  • Representational Image. Photo: Mumit M
    Handful of motorcycles on highways amid restriction

MOST VIEWED

  • The government controls traffic growth with a series of quotas, taxes and duties that can push up the cost of a car.Photographer: Nicky Loh/Bloomberg
    Singapore's sky-high car prices are warning for global cities
  • Abbie Marshall at the The Buck Inn. Photographer: Joanne Coates/Bloomberg
    Wall Street says a recession is coming. Consumers say it's already here
  • Rising sea levels are a constant threat.Photographer: Mario Tama/Getty Images
    China has yet to learn the rules of the pacific chess game
  • The war in Ukraine catalyzed the gas crisis by taking out a crucial chunk of supply. Now the scramble to fill that gap is turning into a worldwide stampede, as countries race to secure scarce cargoes of liquefied natural gas.Photographer: Dwayne Senior/Bloomberg
    Natural gas soars 700%, becoming driving force in the new cold war
  • China’s new Covid flareup threatens crucial economic region, raising supply chain worries
    China’s new Covid flareup threatens crucial economic region, raising supply chain worries
  • Photo: Bloomberg
    The worst stock selloff in half a century might not be done yet

Related News

  • Bank of England tells lenders to brace for economic storm
  • Bank of England joins the scream-if-you-wanna-hike-faster gang
  • Bank of England isn't committed to being 'forceful', Pill says
  • Bank of England set to raise rates again as inflation heads for 10%
  • UK cost of living crisis to peak later this year, BoE to press on with rate rises

Features

Farsim is keen on listening to what his clients really want; in this profession attention is key. Photo: Noor-A-Alam

Making it as an audio engineer

3h | Pursuit
Illustration: TBS

Applystart: Helping students navigate the maze of foreign university applications

3h | Pursuit
The sea beach in Kuakata. Photo: Syed Mehedy Hasan

Five places in Southern Bangladesh you could visit via Padma Bridge

1d | Explorer
Genex Infosys Limited is the country's largest call centre with more than 2,000 seats and full-set equipment. Photo: Courtesy

How domestic demand made Genex Infosys a BPO industry leader

1d | Panorama

More Videos from TBS

Load shedding is back

Load shedding is back

4h | Videos
Photo: TBS

Has Russia gained anything in its invasion of Ukraine?

5h | Videos
Behind the story of 'Aske Amar Mon Bhalo Nei'

Behind the story of 'Aske Amar Mon Bhalo Nei'

16h | Videos
Is Donbas Putin’s next target?

Is Donbas Putin’s next target?

20h | Videos

Most Read

1
Photo: Collected
Africa

Uganda discovers gold deposits worth 12 trillion USD

2
TBS Illustration
Education

Universities may launch online classes again after Eid

3
Area-wise load shedding schedule will be announced: PM
Bangladesh

Area-wise load shedding schedule will be announced: PM

4
Padma Bridge opens up investment spree in south
Industry

Padma Bridge opens up investment spree in south

5
Build Dhaka East-West Elevated Expressway, relocate kitchen markets: PM
Bangladesh

Build Dhaka East-West Elevated Expressway, relocate kitchen markets: PM

6
File Photo: BSS
Energy

India pulls out of LoC funding for part of Rooppur power transmission work

EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2022
The Business Standard All rights reserved
Technical Partner: RSI Lab
BENEATH THE SURFACE
A boat sails through the River Meghna carrying rice bran, a popular cattle feed, from a rice mill in Ashuganj to cattle markets. There are around 250 rice mills in Ashuganj that produce rice bran. The photo was taken recently. Photo: Rajib Dhar

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net