The Bank of England is forecasting the weakest growth of real post-tax labour incomes in more than 70 years, with a fall of 2 per cent this year and a further half a per cent in 2023. This depressing outlook captures the challenges generated by sharply higher import prices and the risks of more generalised inflation. Among leading high-income economies, the UK seems to be particularly hard hit. Inflationary risks seem similar to those in the US. But the UK is also a large net importer of energy, especially gas, as prices have exploded upwards. The government might have hoped that the fading of the pandemic’s clouds would leave a sunlit economy. But, as is their wont, events got in the way. The economy, the people and the government face hard times.

The Bank’s Monetary Policy Report, out last week, noted: “Global inflationary pressures have continued to build significantly, largely driven by the sharp increases in energy prices and upward impact of the imbalance between supply of and demand for tradeable goods on their prices. On a UK-weighted basis, four-quarter world export price inflation, including energy, is expected to have risen to around 11 per cent in 2021 Q4.” The UK cannot take back control from the world economy. Remarkably, the US alone generated almost all of the increase in consumption of goods among the group of seven leading economies last year. That then drove the supply bottlenecks.

The Bank forecasts peak inflation at 7? per cent in April, with three-quarters of the increase between last December and April being due to rising energy and goods prices. But it has a still bigger problem, which is similar to that of the US. The labour market is running hot. Unemployment is already below its equilibrium rate, the Bank believes. Less speculatively, companies report recruitment difficulties and high vacancies. On balance, concludes the report, there is excess demand in the economy, which is not yet the situation in the eurozone.