Beautiful Virgin Islands

Tuesday, Jul 22, 2025

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.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
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
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
Microsoft, US Lab to Use AI for Faster Nuclear Plant Licensing
Trump Walks Back Talk of Firing Fed Chair Jerome Powell
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Irish Tech Worker Detained 100 days by US Authorities for Overstaying Visa
Dimon Warns on Fed Independence as Trump Administration Eyes Powell’s Succession
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
Jeff Bezos Considers Purchasing Condé Nast as a Wedding Gift
Ghislaine Maxwell Says She’s Ready to Testify Before Congress on Epstein’s Criminal Empire
Bal des Pompiers: A Celebration of Community and Firefighter Culture in France
FBI Chief Kash Patel Denies Resignation Speculations Amid Epstein List Controversy
Air India Pilot’s Mental Health Records Under Scrutiny
Google Secures Windsurf AI Coding Team in $2.4 Billion Licence Deal
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
×