Bernard Ponsonby: I predict Liz Truss will perform immediate U-turns if she becomes Prime Minister

From the Bank of England to the Office for Budget Responsibility to a whole host of consultancy firms who specialise in doing some deep digging in economic data, all seem to be in a permanent revision mode.

They forecast, they revise, they forecast and they revise again.

The Bank of England is supposed to keep inflation at around 2% by using interest rates to squeeze inflation out of the economy.

During the pandemic they simply ignored their remit and are now watching as everyone else pays the price for their laissez faire attitude.

Last year they predicted inflation would peak at 5%. They then revised that to 10% and then to 13%.

Yesterday, Citi Bank forecast that as energy price hikes bite in earnest in early 2023, inflation could hit 18%.

These numbers have not been seen since the 1970s.

The constant revisions tell us a number of things.

First, predicting inflation is almost a waste of time. No sooner is a figure arrived at based on a set of assumptions, only to see these assumptions change and render meaningless the initial projection.

Second, the geo-economic and political factors driving much of the inflation is equally impossible to predict. Who knows what 2023 will bring and what consequences there will be for the UK economy?

Third, as inflation remains high for a lot longer than expected, predictions about interest rates will become meaningless too.

Markets have priced in rates rising to around 3% next year, but some analysts are saying if that 18% figure is anywhere near accurate, then rates might have to rise to 6 or 7%.

The Bank of England’s rationale for turning an initial blind eye to climbing prices is that a tightening of monetary policy could tip the economy into recession and push up unemployment.

It is a sign of just how bad some of the key economic fundamentals are, that no-one believes that a recession will be avoided.

What the Bank was trying to avoid they will now get anyway (recession) and the quid pro quo for their inaction is an inflation rate higher than it probably needs to be.

Of course, commentators talk of the ‘real economy’ and that is defined as the production of goods and services as opposed to the operation of financial markets and the operations of banks.

Well, there is something that I like to call the ‘real, real economy’ and that is the consequence for people when those goods and services become unaffordable given their household income.

Yesterday, the head of EDF energy said it looked like half of all UK households will be in fuel poverty in the coming months. Keith Anderson of Scottish Power warned that the economic consequences for people were dire and that the price onslaught must not be allowed to happen.

With every forecast, undercooked or otherwise, and every news report containing the bad news airs, people become spooked and panicked.

TV vox pops don’t need a voiced opinion. You only need look at the stress on the faces of those interviewed to see what this crisis means in practice.

The energy companies know that levels of debt are going to enter the stratosphere. They also know that the driving force is that people can’t pay what they don’t have.

And as this crisis intensifies, the UK Government simply sits and waits. The election of a new leader of the Conservative Party would appear to take precedence over the responsibility of telling folk, who are literally worried sick, what help might be on offer.

At the moment, help for those on benefits and those in the poorest households has been announced and every other household will get £400 towards energy costs.

That package of measures was announced before the price cap goes up on Friday and rises still further in January.

If the current structured help remains in place, as a minimum the new Prime Minister will be forced to increase the help available. As the price cap increases, so too should the help made available.

The opposition parties simply want the current cap to remain with no further increases for consumers.

Whatever the new Prime Minister does, the cost will be eye-watering and given high energy prices will be with us perhaps for years, the final bill will dwarf what it cost the government to operate the furlough scheme during the Covid pandemic.

This creates an uncomfortable issue for the most likely occupant of Downing Street, Liz Truss. Her pitch on the economy to Tory members envisages a smaller state and that means the government keeping out of the operation of markets.

Her bullish rhetoric, so beloved of those who view her opponent Rishi Sunak as a social democrat who has bowed the knee to an encroaching corporatist state, has gone down well.

There is only one problem with it. Rhetoric does not make a policy and that little inconvenience called reality will knock that rhetoric into touch.

I’ll give you a prediction. Prime Minister Truss will make Sunak’s interventionist approach look tame.

If she follows the logic of her position to date, she will be writing her own electoral death notice and no politician is in the business of deliberately losing office.

Truss will abandon the Tory right when she wins, for she has no option but to help households and that means government (state) intervention.

They, in turn, will become disillusioned that she has become a big spender just like Johnson and Sunak and the more ideologically driven among the right-wing commentariat will write thunderously angry pieces bemoaning that the UK is permanently ensnared by socialism.

Sometimes your ideological anchors do not matter in politics. Policy is driven by reality. The reality of this crisis is that poverty is knocking on too many doors and no Prime Minister, left, right or centre, can ignore that fact.

Liz Truss will be Prime Minister in two weeks’ time. She will perform immediate U-turns. Events will dictate what she does.

As the months pass, the sense of crisis will become more acute.

The office of Prime Minister requires intellectual rigour, the emotional hide of a rhinoceros and strong leadership skills that can unite party and country.

These are the qualities that are required to deal with the current crises. They will prove too much for Liz Truss, a lightweight politician who should be nowhere near Downing Street.