Conservative Party leadership front-runner Liz Truss has cancelled a televised interview with the BBC this week, citing time constraints. This has prompted her rival for the role to label her campaign as being without substance and insufficiently robust to stand up to scrutiny.

Truss has been under pressure to confirm that should she win the election, the result of which will be revealed next Monday, she will consider blanket support for the entire country to relieve the concerns over the cost-of-living crisis.

It is understood that Truss favours tax cuts as the most suitable method of reviving the economy, a method that Sunak has labelled as unaffordable.

With less than a week to go before the result is announced, Truss appears to have adopted a defensive position believing that the policies that she has set out have placed her in a winning position.

Sunak will use the time to attack the viability of her proposals, since he has continually been portrayed by his supporters as a safe pair of hands as far as the economy is concerned.

There is an emerging theory that targeting inflation by tightening domestic monetary policy may be becoming less effective as globalisation creates pressures in economies which cannot be cured by dampening demand.

Across the developed world, Central banks have been tightening monetary policy for most of this year, but there has been no noticeable effect on inflation.

The UK is a case in point.

The Bank of England began to hike interest rates last December, but inflation has continued to rise and is predicted to continue to do so, possibly reaching 18% by the end of this year or the beginning of 2023.

There have been factors at play which have worsened rising inflation, the most obvious of which is the war in Ukraine, which has driven the wholesale price of gas to extraordinarily elevated levels.

Outgoing Prime Minister Boris Johnson visited Ukraine yesterday in what will be one of his last official engagements in office. He called upon the UK and the rest of Europe to endure the current energy emergency to defeat Russian leader Vladimir Putin, who is using his country’s gas reserves as a weapon of war.

The man who is tipped to be the new Chancellor of the Exchequer should Liz Truss win the Conservative Party leadership contest, current Business Secretary Kwasi Karteng, has been holding talks with energy sector bosses to find a solution to the rising cost of energy, in particular the wholesale price of gas.

One solution that has been suggested has been a freeze being placed on the energy cap for two years. The plan which has been put forward by the CEO of Scottish Power would cost up to £100 billion over the twenty-four-month period.

The plan involves government guarantees for loans that would enable energy companies to borrow from commercial lenders at competitive rates to buy gas from suppliers at the historically inflated cost without having to pass on the cost to consumers.

The so-called deficit fund would help both the cost-of-living crisis and the continued rise in inflation that was tipped to reach 18% earlier this week.

The Bank of England is continuing to shrink the size of its balance sheet by selling off assets bought as part of its support for the economy during the Pandemic.

It will sell off £200 million in corporate bonds per week starting next month. As part of its programme of quantitative easing, the Bank bought around £20 billion of bonds from non-financial entities following the Brexit referendum and the Pandemic.

These sales are dwarfed by the ongoing divestment of Government Bond holdings, which are currently being reduced by £40 billion a month. This is being achieved by not reinvesting the proceeds of maturing paper.

The draining of liquidity from the market will add to the tightening of monetary policy which is happening in conjunction with rate increases which have been happening since last December and have been gradually increased in size.

The most recent increase of fifty basis points is expected to be matched at the bank’s next meeting, which will take place on September 15th. The Central bank is still committed to using monetary policy to bring down inflation, despite the lack of evidence so far that the policy is working.

The continued rise in the cost of energy could see inflation reach 18% in the coming months, according to global banking giant Citibank. With the wholesale gas price rising by 25% in the past week alone, inflation would rival the levels last seen in the mid-1970s.

Were workers to demand wage increases to keep pace with inflation, it is also forecast that the Bank of England would be forced to hike interest rates to 7.5%, more than four times the current level.

A few months ago, as the country was optimistically looking forward to emerging stronger from the Pandemic and reaping the benefits of Brexit, such a Doomsday scenario was no more than the stuff of economist’s nightmares.

However, with industrial action spreading from criminal court Barristers to dockworkers, there seems little that the Government can do to halt the spiral into higher wage demand that will fuel inflation even more.

With the central bank already acknowledging that there is a recession on the way, all that can be done is to limit its effect.

When Boris Johnson announced his Resignation on July 5th, he refused to step down immediately and hand over control to his deputy Dominic Raab, citing the need for a seamless transition to his successor and the serious issues that the country is facing.

However, since Johnson’s resignation the country has appeared to be rudderless with the Prime Minister taking not one but two holidays during this time as the two candidates to replace him spend time promising tax cuts and additional support payments to woo voters.

By the time Johnson’s successor is voted in and been able to create a new Cabinet, the third quarter of the year will be at an end, and the country will in all probability be in recession.

With inflation now above 10% and looking increasingly likely to top Andrew Bailey’s estimate of 13%, urgent action is needed to provide support to the lowest paid to avert the rising level of industrial action that is not only already taking place but also further strikes through the public sector.

The country’s largest container port at Felixstowe has been hit by a strike which started on Friday, and this will add to the continuing issues with supply chains that have only just returned to normal following the Pandemic.

Following this week’s publication of inflation data for July, there is a view growing among analysts that the Bank of England may be forced to raise interest rates to a level above 3% to bring rising prices back under control.

It is expected that at its next meeting, the Central bank will add another fifty basis points to bring the base rate to 2.25%, with another two further fifty basis point hikes to follow.

Such a move will certainly contribute to a recession which Governor Andrew Bailey has predicted will arrive in the fourth quarter and could last through the whole of 2023.

If inflation can be brought under control, the bank may be able to begin to lower rates to provide a degree of support for the economy by the third quarter of next year.

With the Conservative party leadership contest to be completed in a little over two weeks, the current underdog, Rishi Sunak, who has trailed in the polls since the race was reduced to two contenders, still believes he can become Prime Minister on September 5th.

Increases in the cost of several staple foodstuffs more than offset the fall in the price of petrol, as the UK recorded a headline rate of inflation of 10.1% in July.

The country now has the highest rate of inflation in the G7. The core rate of inflation, which records price rises with volatile items such as food and energy stripped out also rose, from 5.8% to 6.2%.

With the price of petrol now averaging around 168p per litre, having reached 200p earlier in the year, the cost of the shortages created by the ongoing conflict in Ukraine hit home.

As the outlook for the economy worsens with a consequent downwards revision to tax receipts, the Institute for Fiscal Studies warned that any permanent tax cuts that have been promised by Liz Truss should she win the Conservative Leadership Ballot could cause serious harm to the public purse.

Truss’ rival in the race, former Chancellor, has campaigned on the back of a more prudent attitude to taxation. Having raised the level of National Insurance in his last budget as Chancellor, Sunak believes that the inflationary effect of a cut in taxes should wait until price rises have been brought under control by the Bank of England.

The opposition Labour Party has stolen a march on the Government by announcing that were it to be in power, it would freeze the energy cap for six months.

While the two candidates to replace Boris Johnson as Prime Minister have spoken in very general terms about plans to help consumers as the cost-of-living crisis escalates, this is the first solid and practical solution that has been suggested.

The opposition leader, Sir Keir Starmer, has suggested that the freezing of the cap could be funded by a windfall tax on energy firms who have made record profits as prices have risen.

Now, whoever wins the Conservative Party leadership election is facing a dilemma, since if they adopt such a scheme, they will face accusations of not having sufficient imagination to produce such a proposal.

This week will see both employment data and the inflation report for July published.

As expected, the UK economy contracted in the period between April and June, but by less than had been expected.

GDP was 0.1% lower than in the previous quarter, leading to a year-on-year increase of 2.9% following an 8.9% rise previously.

Data for professionals’ services showed a significant increase, with both the accountancy and legal sectors reporting increases in turnover as revenues swelled.

Since Andrew Bailey confirmed the Bank of England’s view that the economy was going to head into a technical recession, it will not be a surprise if the figures for the current quarter are worse.

With the Bank of England unlikely to follow the Federal Reserve in denying that the economy is contracting, it will begin to face pressure to add support, particularly with headline inflation expected to fall this month given the current price of petrol.