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Marcus Ashworth

Rishi Sunak’s Helicopter Drop Makes the Bank of England’s Life Easier

By adding fiscal support to the economy, the UK government has freed the central bank to focus on curbing inflation.

The guy on the right just did a solid for the guy on the left.

The guy on the right just did a solid for the guy on the left.

Photographer: Alex Kraus/Bloomberg

A difficult task has just become slightly easier for the Bank of England, following Chancellor of the Exchequer Rishi Sunak's 15 billion-pound ($19 billion) relief package announced Thursday. The measures, including energy bill subsidies for every UK household plus one-off grants to pensioners and welfare recipients, mark a spectacular U-turn by the government as the cost-of living crisis worsens. But the arrival of the fiscal cavalry eases the potential impact on growth, freeing the central bank to focus on curbing a surge in consumer prices that threatens to savage the financial health of the most needy. 

At its most recent policy meeting, BOE Governor Andrew Bailey raised the prospect of the economy stalling, setting the scene for a dangerous economic backdrop given that inflation is already at a 40-year high of 9% and is set to reach double figures in the coming months. Sunak’s rediscovery of the magic money tree, missing in action since the pandemic relief program ended, belatedly undoes some of the economic damage inflicted by the tax increases he introduced earlier this year on companies and workers. If the government is alive to the risk of recession, the central bank can get on with the job of tackling price increases.