For Rishi Sunak, the problems are only just beginning

He’s incredibly popular among MPs and activists and widely tipped as the frontrunner to take over from Boris Johnson. But, as Sean O’Grady explains, the chancellor faces a series of tough decisions that could yet hamper his ambitions

The very schemes that delivered him such affection among the voters – furlough, ‘bounce back’ loans, various tax reliefs – are about to expire (AFP/Getty)

It’s fair to say Rishi Sunak has enjoyed a pretty good press over the past year or more. His schemes to support the economy, supported by the Bank of England, have worked, broadly, against the double whammy of Brexit and Covid. Borrowing has reached wartime levels but few seem to care, and inflation has not (yet) taken off, or sterling collapsed. His personal ratings have shot up among MPs and party activists, and the voters seem to like him too. Pointedly, they contrast with the prime minister’s decline into trolley-like aimlessness. Now he is in a position to welcome a remarkable rise in national income over the April to June quarter, of some 4.8 per cent – nearly 20 per cent on an annualised basis. He declares, predictably, Britain is “bouncing back” with the highest growth among comparable economies. Pointedly, he fails to dispel speculation he fancies the leadership of his party.

He should watch it.

Apart from incurring some prime ministerial envy and irritation (Sunak was, after all, installed as a more pliant replacement for Sajid Javid), Sunak’s real problems – economic and political – are only just beginning. The very schemes that delivered him such affection among the voters – furlough, “bounce back” loans, various tax reliefs – are about to expire. The Bank of England thinks inflation will hit 4 per cent before long and, while it might be inclined to “see through” temporary factors, this may not last if the situation fails to right itself, and a wage-price spiral starts up. Then interest rates, at extraordinarily and historically low levels since the banking crisis in 2008-09, will begin to edge up again, eroding consumer confidence. All of these risks spell danger for economic growth, and the fact is that the UK economy remains smaller than it was before Covid and/or Brexit. Both of those events, or processes, will have a lingering and dampening effect on trade, productivity, employment, and investment – and the latest GDP figures confirm that private sector investment (key to boosting productivity and wages) is anaemic.