The Guardian - UK (2022-05-02)

Monday 2 May 2022 The Guardian •

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Bank ‘duty bound’ to trigger

recession to curb infl ation

Phillip Inman

Britain’s central bank policymakers

are “duty bound” when they meet

this week to push the UK into reces-

sion to cap rising infl ation, a former

Bank of England offi cial has said.

Adam Posen , who runs the

Peterson Institute thinktank in

Washington, said that while the Bank

would not want workers to lose their

jobs, it should increase interest rates

now to squeeze out infl ationary pres-

sures made worse by Brexit trade and

immigration restrictions.

The Bank’s monetary policy com-

mittee (MPC) meets on Thursday

and is expected to increase rates by

0.25%, taking the base rate to 1% – its

highest since early 2009. Infl ation in

March peaked at 7%, a 30-year high.

Posen, a member of the MPC from

2009 to 2012, said the Bank needed to

take more drastic action after Brexit

reduced UK labour supply and limited

fl exibility of the workforce. Without

a U-turn by the government on trade

restrictions and immigration policy,

the Bank must shrink the economy.

“The central bank has no choice

but to cause a recession when a broad

range of prices are rising at such

a strong pace,” he said. “It is duty

bound to bring infl ation down after

more than a year when it has been

more than 2 percentage points above

its 2% target level during a period of

full employment.”

He said wages were increasing

due to shortages of workers and this

was likely to add to infl ationary pres-

sures for several years unless there

were further interest rate increases.

If wages failed to keep pace with

infl ation over the rest of the year, it

showed the wage bargaining power

of workers was weak and there was

even more reason to put the brakes

on rising prices.

“There is a greater risk of infl ation

persisting without further action in

the UK compared with other major

economies. The US is going through a

period of high infl ation that monetary

policy will arrest. Euro area countries

don’t really have much infl ation other

than the spike in energy and food

prices caused by the Ukraine war.

“The UK, on the other hand, has

Brexit, which is going to restrict the

supply of labour over the longer term,

and trade restrictions that will keep

prices higher than they would other-

wise be,” he said.

Opinion is divided over the next

steps by the Bank, with some, includ-

ing Posen’s predecessor on the MPC,

the labour market economist David

Blanchfl ower, arguing that rates need

to remain low to protect an economy

already heading for recession.

Blanchfl ower, a professor at the Ivy

League university Dartmouth Col-

lege, said several indicators showed

the UK was heading into recession

and it would be irresponsible for the

Bank to give an extra push.

Those calling for a succession of

rate increases argue the pace of wage

increases and strong levels of savings

among middle and higher income

1%

Predicted level of the new base rate

after the Bank’s policymakers meet

this week – its highest since 2009

Kw a r te n g

‘open’ to

nuclear plant

extension

Rob Davies

Nuclear power advocates believe the

energy secretary, Kwasi Kwarteng ,

is open to extending the life of the

Hinkley Point B plant to help wean

the UK off gas imports and prevent a

faster-than-expected decline in Brit-

ain’s fl eet of atomic reactors.

Soaring gas prices and the war in

Ukraine have already spurred the

government to ask coal power plants

to stay open longer , while ministers

also revisited their staunch opposi-

tion to fracking in the light of energy

supply concerns.

There is a growing feeling in the

nuclear industry and among its sup-

porters that Kwarteng could also be

persuaded to back an extension of

up to 18 months to the life of Hinkley

Point B, which is due to stop generat-

ing electricity this summer.

Such a plan, which would chime

with Boris Johnson’s backing for new

nuclear plants in the recent energy

security plan , would keep 1GW of

electricity generation on the National

Grid in the short term, replacing the

need for gas-fi red generation for up

to 1.5m homes.

The Tory MP Ian Liddell-Grainger ,

whose Bridgwater and West Somer-

set constituency includes Hinkley,

said he had spoken to Kwarteng about

the possibility and that he was “def-

initely” open to it. “ He understands

the stresses and strains we’re going

through and that we need to look at

everything we can. They are fully

aware of what the [Hinkley] B station

is capable of. She’s old but she’s in

good health ,” Liddell-Grainger said.

Hinkley’s owner, EDF Energy ,

would have to produce a safety case

for extending the life of a power sta-

tion that was hooked up to the grid in

1976. Its closure was previously post-
      poned by seven years in 2012.
      EDF would have to prove to the
      Offi ce for Nuclear Regulation (ONR)
      that the ageing graphite rods in the
      plant’s reactors could be inserted,
      even in the event of a huge and
      unprecedented earthquake, to pre-
      vent a nuclear accident.
      One nuclear industry source said
      there was a “six -week window” left

during which EDF could still make

that case in time for the ONR to give a

verdict on the safety of the plans and

postpone the scheduled end to the

plant generating electricity on 15 July.

“ [ Extending Hinkley Point  B]

would stop you having to import a

chunk of gas,” said the source. The y

added that while engineers were

focused on the shut down plans , sen-

ior EDF fi gures were likely to be more

open to extending its life.

The ONR would ultimately decide

on whether such a plan could go

ahead but Kwarteng’s approval is

crucial. This is because EDF would

incur signifi cant costs to put together

a safety case for an extension and

would want to be confi dent minis-

ters would not block it.

EDF declined to comment on

whether it was planning to do so.

The Department for Business, Energy

and Industrial Strategy said it had not

held discussions about a proposal.

The Guardian also understands

that Torness and Heysham 2 nuclear

plants could come off grid earlier

than expected, depending on regu-

lar assessments of the state of their

graphite rods. Their retirement has

already been brought forward, with

EDF saying they would stop generat-

ing in 2028, rather than 2030.

In theory, each station that oper-

ates for a year can replace more than

1bn cubic metres of gas imports.

▲ Hinkley Point B (second building

from left) opened in 1976 and had

been set to close down on 15 July

PHOTOGRAPH: SIMON YOUE/ALAMY

No more cheap

chicken? Price

set to match

that of beef

as costs soar

Zoe Wood

Its relative aff ordability has helped

make chicken the country’s meat of

choice, but one of the UK’s biggest

food retailers has warned it could

soon be as pricey as beef as produc-

tion costs soar.

Steve Murrells, the chief execu-

tive of the Co-op, said feed costs had

become a huge challenge for the poul-

try industry. “Chicken could become

as expensive as beef. Chicken, which

was incredibly cheap and great value

for money, is rising quicker than any

other protein.”

Chicken is the country’s most

popular meat, with consumption

levels far outstripping beef, lamb

or pork. At a time when household

food bills are already rising , higher

priced chicken is likely to have a

dis proportionate impact on lower

income families.

The situation has been exacer-

bated by the Russian invasion of

Ukraine. The ingredients in chicken

feed include soya, sunfl ower meal

and wheat, all of which have risen in

price. Ukraine and Russia are major

sunfl ower oil and wheat producers.

O ffi ce of National Statistics data

shows the average retail price of

chicken rose by 31p, or nearly 12%,

to £2.98 per kg in the last 12 months.

groups will mean demand outstrips

supply, generating higher infla-

tion. They say fi rms lack the skilled

workers and raw materials to meet

demand, and are likely to respond

by increasing prices further.

Shortages of staff pushed vacan-

c ies to a fresh record in the three

months to February. The worst-

hit industries – IT, manufacturing,

construction and hospitality – had

relied most on foreign-born work-

ers, m ainly from the EU, Posen said.

He added the UK was “far more

open to trade and immigration, and

attractive for foreign investment,

before the 2016 Brexit vote”.

Ken Rogoff , a Harvard professor

and former IMF chief economist ,

said: “A recession in Europe is almost

inevitable if the war in Ukraine esca-

lates, and the Chinese economy may

already be in recession .”

Writing on the Project Syndicate

website, he added: “And with US

consumer prices currently increas-

ing at their fastest rate in 40 years ,

prospects for a soft landing for prices

without a big hit to growth look

increasingly remote.”

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