Last week, the U.K. budget bore the cutesy title: “Breathing Space for Today: Fresh Hope for the Future.” Its focus was on affordability — the key issue in many countries today — with some modest breathing space given to families, businesses and local governments especially with respect to energy costs.
The budget flamed out, with the highly-regarded Institute of Fiscal Studies providing a typical reaction: “This was broadly the budget that many people were expecting. A relatively small cost of living package and a handful of tax rises. Borrowing higher across the rest of the decade.”
But when on Thursday the Bank of England announced a quarter-point increase in its policy rate to four per cent — the first increase in three years — a good chunk of that breathing space disappeared, not just for families and businesses but also for a U.K. government facing a weak economy, inflation and rising public indebtedness.