The UK’s monetary policy is far less expansionary than the US, with growth at half the US rate adjusted for the size of the economies.The fiscal stance in the U.K. is far tighter than the US who have just announced a monster $1.9tn spend and borrow programme on top of all the previous pandemic measures. If any country is going to have an inflation problem from their response to the pandemic it will be the USA.
The U.K. has offered a larger public spending and borrowing boost than most European countries and has accelerated its money growth in line with the ECB. Our inflation rate according to official forecasts will rise a bit but will stay anchored near the 2% target. Others think it could get a bit livelier than that.
Given that we do need stimulus to fuel recovery, and given that an early return to austerity deficit control could make the deficit worse, the U.K. does need to finance an expansion. Given the global inflationary pressures likely to break out the best response for the U.K. is to expand domestic capacity rapidly to avoid shortages and undue price hikes in popular areas. We need more domestic capacity in everything from electricity to timber, from food to broadband to cut the risks from present monetary and fiscal policy.
Public spending support to replace lost incomes and business hit by the lock down was necessary. As we move out of lockdown this public spending should drop away as income and turnover returns to people and business back at work. Going forward spending on good quality public services is needed, but not wasteful spending.