Stephen King - Rishi Sunak's Budget is drifting towards an iceberg: inflation

THE best laid plans of mice and…well…Chancellors. On Wednesday, Rishi Sunak will unveil his latest Budget. Whatever he gives and whatever he takes, his numbers will be based on some “best guesses” about the future path for the economy.

Previous “best guesses” haven’t always worked out very well. After all, stuff happens. Every so often, a Chancellor hits an iceberg, whether it’s the global financial crisis or, more topically, the Covid-19 pandemic. Then the fiscal numbers can quickly go out of kilter.

Over recent weeks, a new iceberg has loomed on the horizon. Recent occupants of Number 11 mostly avoided having to worry about inflation. Sunak, on the other hand, doubtless is worrying. Admittedly, recent inflationary squalls may not represent a profound change in the economic environment. We do know, however, that the Bank of England is pondering whether to raise interest rates sooner rather than later.

It’s easy enough to see why the Bank is more than a little bit nervous. Inflationary expectations have edged higher; both price and wage inflation have moved ahead; energy prices have soared; and the UK labour market is “tight”, with over a million vacancies.