The Bank of England won’t act this week

No inflation surge while households cling to savings

Inflation shouldn’t be a barrier to further action either. Empty supermarket shelves seen at the onset of the pandemic meant that economists fretted as much about the potential effect on supply as well as demand, as well as firms passing on increased costs such as PPE to consumers.

In the UK there was an upward surprise of 1pc in July (still just half the Bank’s 2pc target), driven by factors such as fewer clothes sales this year: but the latest figures will see the Chancellor’s Eat Out to Help Out scheme pushing it down to almost zero. Energy bills will fall from October, too, after regulator Ofgem’s recent ruling. 

Core inflation across major economies is also trending lower and the absence of wage pressure in the current climate is unlikely to revive it. Monetarists would argue that the huge expansion of the money supply seen in response to Covid-19 poses a future threat, but these are much different circumstances to credit-fuelled exuberance.

The surge in government borrowing that has been passed on to households (via furlough, for example) and businesses is being hoarded. Firms also drew massively on existing credit lines early on in the crisis to stay liquid.

Households and companies are making themselves economic bomb-shelters to ward off unemployment and insolvency by building up reserves, meaning that the “velocity” of money has slowed dramatically. These hardly seem like the conditions for an inflationary surge. Companies’ investment intentions have also fallen off a cliff, as the prospect of repaying some £100bn in coronavirus loans hits home next year.