Another interest rate looms, but Britain doesn’t need this one either | Phillip

Next month brings the likelihood of a 0.25% interest rate rise from the Bank of England, and possibly two more over the rest of the year, as Threadneedle Street seeks to dampen Britain’s overheating economy.

At least that would be the reason if the economy were overheating and in need of higher interest rates. In fact, the central bank is simply revealing itself to be weaker than it was in 2011, when inflation jumped to 5% and investors, fearful of runaway prices encouraging workers to demand sky-high wages, demanded action. Interest rates then remained at historic lows.

The logic of the position the Bank took last year – that inflation would be temporary and externally driven, and for that reason beyond its influence – was reminiscent of 2011. And given the underlying weakness of the economy, that same logic still applies.

Of course, inflation is a problem for households that are facing higher food and utility bills, and especially poorer households which have mostly missed out on working from home. They haven’t saved large sums during the pandemic. To solve that problem, why not reinstate last September’s cut to universal credit? Its removal amounted to a loss of about £1,000 a year, and the money would easily make up for the intangible costs of Covid as well as the more tangible gas bill rise. Meanwhile, the better-off can afford higher prices.

The Bank is only concerned by the average worker’s response to inflation and whether it will be characterised by rocketing wage demands – driving incomes higher this year and next. There is little evidence for this, and it seems implausible when so many businesses have successfully driven wedges between their workers, denying them any possible collective action.

What about sky-high vacancy rates? Weren’t they supposed to force almost all employers, including those that shunned unions, to pay megabucks – protecting workers against inflation and maybe offering a bit more on top?

On this point, the Resolution Foundation has pulled together the latest data from the ONS surveys of online job adverts. In October, transport and logistics firms were looking for about 350,000 workers. By 6 January this had fallen to 200,000.

Similar drops in demand were seen in catering and hospitality and construction, knocking another 150,000 off the 1.1m vacancy total.

It’s true Omicron played a large part in the decisions employers made about needing extra staff over the festive period. Yet there was also something more fundamental going on, as the foundation’s director, Torsten Bell, says in an accompanying analysis, arguing that a messy reopening of the economy was always going to cause temporary jobs mismatches, adding that over time “capitalism is quite well set up to adjust to shifts in demand”.

How else is the economy overheating? The focus is on the latest GDP figure, which shows the economy surpassed its pre-pandemic level in November and, after an Omicron dip that will mar December and January’s figures, looks like picking up again once working from home…