Merryn Somerset Webb

was that inflationary pressures were abating.

And they really were abating.

They'd been abating for the better part of six to nine months by the start of this year.

And if anything, I'd been a bit critical of my former employees at the Bank of England for not lowering rates faster than they had, which I thought was justifiable given that inflationary pressures had peaked out and were falling.

Now, the world has changed and we saw financial markets run very quickly to the other side of the boat with an expectation of now rate rises, not just in the UK, but in the US and the Euro area as well.

That looks to me like a very significant overcorrection.

Why do I say that?

I suspect lots of people were repeating the Ukraine-Russia playbook

And this is not that.

This differs from that in two very fundamental and significant respects.

First, the scale of shock, at least so far, tempting for it in saying this, but the scale of shock so far is nothing like on the same scale.

That was a shock to the cost of living of north of 10% in the UK.

At current energy prices, we're talking a shock to the cost of living of 2% or 3%.

So much smaller shock.

What's more, that smaller shock to costs is breaking on an economy that's very different, and a labor market that's very different than back in 21, 22.

Back then, we had resurgent demand.

coming up against constricted supply post-COVID, the result of which was an obvious bottleneck.

And we had cost push pressures, much larger ones, alongside demand pull pressures, and the result was inflation.

This time, we do not have those frictions.

Demand is soggy.