Britain’s High Price to Pay

On top of which, BOE Governor

Andrew Bailey

delivered one of the dreariest economic forecasts from a government official anywhere in recent memory. He anticipates the economy will contract for the next two years under the weight of further rate increases, high energy prices and global headwinds.

Even Mr. Bailey’s good news is bad news. The BOE suggested interest rates may top out lower than the 5.25% investors currently expect. All else equal, markets will appreciate the reprieve after September’s ructions in pension funds exposed Britain’s financial fragility in the face of rising rates.

But inflation is running at 10.1% and Mr. Bailey can offer only a hope and a prayer it will decline while inflation-adjusted interest rates remain as negative as they currently are. More timid rate-raising suggests households will have to tolerate higher inflation for longer eating into their purchasing power until luck turns the economy around.

And this, recall, is what Ms. Truss’s critics said they wanted. She offered supply-side tax-rate cuts and deregulation to stimulate productive private investment to offset the unwinding of malinvestment as monetary policy returns to normal. Fiscal scolds complained this would be inflationary and force the BOE to raise rates further. The BOE played along to mask its recklessness in letting inflation spike while financial fragilities accumulated.

Ms. Truss’s successor,

Rishi Sunak,

has reversed most of the tax cuts and many of Ms. Truss’s deregulation pledges, including on shale-gas fracking to increase energy supplies. His Conservatives might claim victory in Mr. Bailey’s claim that rates might not rise as high now. Don’t expect that to convince voters if the economy remains in a stagflationary recession at the next election due by January 2025.

The last time the BOE tolerated higher inflation while lawmakers prioritized budget balance over growth—after the 2008 global panic and recession—inflation-adjusted earnings fell every year for six years. This time might be worse because the BOE is falling so far out of sync with the Federal Reserve. Mr. Bailey’s timidity compared to the resolve shown Wednesday by Fed Chairman

Jerome Powell

caused the pound to fall below $1.12 Thursday from above $1.14 Wednesday. This will mean more import-price inflation in the U.K.

If anyone other than Ms. Truss has a plausible plan to get the British economy growing again, it’s the best-kept secret in Britain. Mr. Bailey has failed to contain inflation and politicized the central bank against Ms. Truss’s agenda. Only now has he told Britons what a high price they’ll pay for spurning the only pro-growth policy agenda on offer.