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The big risk to Boris Johnson isn’t Labour – it’s inflation

The threat of a Bank of England interest rate rise looms over the Conservatives’ poll lead.

By Stephen Bush

The Bank of England’s chief economist, Huw Pill, has told MPs that the “magnitude and duration of the transient inflation spike is proving greater than expected”. In other words: the increase in inflation we are seeing is still in his view a passing phenomenon, but a larger and longer-lasting passing phase than he had previously thought.

Pill’s words matter because he is one of the nine members of the Bank’s monetary policy committee, which sets interest rates. Although the increase that traders anticipate (from 0.1 to 0.75 per cent) is vanishingly small by historic standards, a generation of consumers have known more than a decade in which rates have stayed ultra low, and the political and social impact if rates return even to the levels seen before the financial crisis is uncertain.

Added to that, it will fuel the belief at Westminster that this transient spike in inflation is anything but transient: that once the HGV driver shortage is resolved by paying higher salaries to drivers, this will inevitably lead to inflation in supermarkets, restaurants and across the rest of the economy – and that’s before you remember the spike in energy costs that will fall first on industry but will make their way to the consumer in the long run. 

Inflation was the ghost at the feast at Conservative Party conference, in which MPs and Spads were debating their good fortune in still enjoying a lead over Labour. For some, that the fuel shortages and the rise in prices hasn’t led to a Labour lead is a sign that Keir Starmer will never find a way to win. But others fear that the headline figures are a lagging indicator, and that the pressures of inflation, the Universal Credit cut and next April’s tax rises mean that this week is peak Tory.

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