Top economist Mohamed El-Erian is spot on with his warning that the Bank of England might push us into recession if the Government relies solely on raising interest rates to curb inflation.
More pertinently, the Allianz chief economist added that while the Bank has no choice but to lift interest rates, the only way to avoid a recession is to increase productivity, ease supply chains and improve the labour market.
In other words, El-Erian says it’s only by a multi-pronged attack that inflation can be brought down. By itself, interest rate rises are too blunt a cudgel.
Indeed, the reason why inflation is so much higher here in the UK, particularly for food, than elsewhere is because of long-term structural issues made worse by terrible productivity levels and job shortages.
Yet there is little evidence that either politicians or policymakers are doing anything drastic enough to solve these problems.
Sunny outlook: Britain’s tourism industry is predicted to be buoyant this year
There are new proposals in place, such as recent measures encouraging people back into work, but these will take months to work through.
You could argue that politicians are making a grim situation worse by being so pessimistic. Worse still, Chancellor Jeremy Hunt says he backs further rises in interest rates to flatten soaring inflation even at the risk of tipping us into recession.
But there are alternatives, and other levers to pull, if only Rishi Sunak and his ministers would listen to businesses on the ground – particularly the UK’s smaller firms – about how to improve productivity and investment.
Now the sun is set to shine, they should look at helping Britain’s tourism industry, which is predicted to be buoyant this year with so many Brits staying home and good exchange rates for international visitors.
To make life easier for them, the Federation of Small Businesses has come up with its own Sunshine List which includes a myriad of ways the Government can help an industry still suffering from the aftermath of lockdown. And small firms need a boost: recent surveys show that 77 per cent of those in the hospitality sector carry some form of debt compared to 59 per cent pre-pandemic.
The Sunshine List is simple but effective: get rid of potholes, raise the VAT threshold from £85,000 to £100,000 and lift the small business rates relief threshold to £25,000, taking 200,000 firms out of rates.
Energy costs are still a huge factor, whether it’s electricity to power breweries or the electricity feeding the fish and chip fryers. Energy firms should allow small businesses, which negotiated their contracts at the height of the energy crisis last year, to extend contracts to take advantage of lower wholesale prices. Makes sense.
Famous last words, but if the Met Office is to be believed, we are in for a hot summer – so adopting the list is a no-brainer.
In the immortal words of Morecambe and Wise: Bring Me Sunshine.
Oily hypocrisy
The annual meetings of ExxonMobil and Chevron promise to be lively next week.
Norway’s sovereign wealth fund is flexing its muscles, demanding that the two do more to tackle the climate crisis – and split the roles of chairman and chief executive at both oil giants. The world’s biggest investor in equities – the fund owns stakes worth £1.1trillion in 9,000 companies – is backing the climate activist group Follow This, which is leading the protest.
It hopes that by having such clout on board, other investors will be persuaded to come on side: it has a 1.13 per cent stake in ExxonMobil and a 0.86 per cent slice of Chevron.
They are demanding the two cut their ‘scope 3’ emissions by the end of the decade in line with the 2015 Paris climate agreement and a change in corporate structure at the top.
But the oil giant bosses are fighting on the front foot.
They will no doubt point to the hypocrisy of the Norwegians, whose country only became one of the richest in the world after discovering oil and gas in the late 1960s.
When it comes to such moral dilemmas, the Norwegians can be holier than thou. Even so, they should also be asked to explain the irony.
Hot news
Ice cream sellers complain that Cadbury Flakes, which are now made in Egypt by Mondelez International, are too crumbly for a 99 cornet.
If we do want a great tourism season, then making a non-crumbly flake should be top of the Sunshine List.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
