The economy collapses. But I can’t remember any government that was so haphazard | Will Hutton

WWelcome to the UK, May 2022 – and one of the most toxic and dangerous economic moments I can remember. Last week, the Bank of England forecast inflation to top 10% and projected negligible growth over the next two years, plunging into a months-long recession accompanied by a sharp fall in living standards. That’s serious enough, but less noticed and of equal importance is the 10% devaluation of sterling over the last three months.

This is in response to the economic trap the UK finds itself in, compounded by the post-Brexit implosion of our EU trade and the Brexit-induced fall in foreign investment. If Sterling’s fall continues, Bank of England policy will become even more somber.

For now, she’s hoping rates will peak at a manageable 2.5% before inflation returns to 2% in 2025. But that is dependent on sterling’s decline being ended. If the bank needs to reassure financial markets of its determination to stem inflation and stem the pound’s ongoing weakness (why would anyone buy it?), interest rates could soar even higher.

The Brexit Tories don’t understand modern capitalism or how to operate it

The economy is being pushed into a deeper recession, with already visible strains in parts of the real estate market exacerbating.

Markets would be more reassured if it was clear that the government has a strategy, a program, a plan. The problem: the government is clueless and is clinging to two quasi-religious catchphrases that it can’t get rid of. In his eyes, the hard Brexit he negotiated is a sacred achievement that can only mean opportunities, not a crisis. His mistakes cannot be acknowledged. Second, Thatcherism has such a reputation that any targeted action to address the weaknesses of the economy is considered “unconservative.”

The government’s understanding of economics is therefore childish: free markets, little regulation, low taxes, balanced budgets and cheap available labor as the alchemy for 21st century economic growth.

The uselessness of these settings has become apparent in recent weeks. Called to draft responses to the cost of living crisis, ministers proposed increasing the number of childcare workers people can look after and urged people to apply for benefits to which they are entitled and every two years carry out TÜV tests. For real? Meanwhile, checks on products imported into the EU at our borders are to be postponed until the end of 2023, with no reciprocal relaxation of UK exports to the EU.

To demonstrate our weakness, Boris Johnson had to ask Softbank, the owner of our hi-tech jewel Arm, to list the company in London instead of New York. This is the $40 billion acquisition, made weeks after Brexit amid applause from Tories and Brexiteers, a sign Britain remained “open for business”. Those of us who warned that this was an opportunistic asset grab and that Softbank’s promises were worthless have been dismissed as Remoans overly attached to Project Fear. Expect Arm to be floating in New York and not downsized Brexit-London.

Markets need a confidence-inspiring plan to restore economic growth that stimulates investment and productivity

The Brexit Tories don’t understand modern capitalism or how to operate it. Ensuring that inflation doesn’t feed itself and become entrenched will take more than rate hikes and buoyancy chants.

Markets need a confidence-inspiring plan to restore economic growth that stimulates investment and productivity.

Working people need to know that the government will step up its efforts to protect living standards during the cost-of-living crisis, thereby deterring aggression over wage demands that could trigger a wage-price spiral. There is neither nor.

While the new federal government is aggressively pursuing a dual strategy of going to net zero and creating a new digital economy that impresses the markets, we own nothing. Rising, creating globally competitive cities in every region and nation, could have been such a strategy, one that could plausibly double GDP over a generation. It should be placed at the heart of the government’s economic policies, along with the pursuit of net zero. Instead, the chancellor vetoed it, holding on to his piggy bank to protect tax cuts in 2024.

There is no strategy for the cost of living either. There’s more than enough headroom, even before windfall taxes. The Office for Budget Responsibility projects that in three years the government will have exceeded its target of a balanced budget by £31bn. The Chancellor could give each of the 10 million hard-hit households on benefits a targeted £500 a year in cash to free them from the choice between food, warmth and clothing. If he had to do it for the rest of this Parliament, the total bill would be £10bn – conveniently affordable and reassuring millions.

The industrial strategy should be revitalized and renewed, but focus on the new “intangibles” economy, where intellectual property, knowledge, digitization, brands and human capital are at the heart. We must build institutions ranging from a smarter competition authority to better banks and investors who understand the intangible revolution – and how to drive it.

Reality must prevail over where economic opportunity lies. Modern economies are closely interconnected, with cross-border supply chains. The UK has too few business leaders to lead their sector, but it has many mid-sized companies whose business is part of a larger supply chain.

Membership in the single market with common regulatory standards made this easier in the past. Well, as Ulrich Hoppe, Director General of the German-British Chamber of Commerce, said last week, Brexit Britain is being cut out of these supply chains because the burden of meeting common standards is too great. Outside the EU and without a strategy, deindustrialization is accelerating in the Midlands and North.

However, it is chaired by a directionless government, heavily protected by its press, whose sole aim is to keep the prime minister in office. Instead of addressing these weaknesses, future parliamentary time should be devoted to continuing the vendetta against Channel 4 and the `. Those who would destroy the gods to coin an expression first drive them mad.

Will Hutton is an Observer columnist