The threat of inflation is not so imminent as No 11 would have us believe
While higher interest rates would add to the cost of financing the debt burden, central banks are unlikely to raise them soon
There was a warning after last week’s budget that Rishi Sunak’s recovery plans could be blown off course by a rise in inflation of such strength that it would force central banks to raise interest rates. A modest increase of just 1% in the interest paid on government debt would add between £20bn and £25bn to the cost of financing the UK’s debt and sink any hopes Sunak had of balancing day-to-day income and spending by 2026.
Sunak said as much in his budget speech, using the prospect of higher interest bills as a reason to ramp up taxes on households and businesses in the second half of the parliament.