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The PM yesterday said that fears of an "inflationary spiral" had held back the amount of support the government could offer in the cost of living crisis.
This is a tricky concept to explain to millions of people seeing the energy bill direct debits more than double, and take home pay fall after national insurance rises. Indeed the more basic direction of causation would be the other way - lower energy price rises mean lower rates of inflation.
The logic is not new. The Treasury made the same point in a letter in December underpinning its approach to pay for public sector workers, saying rises could "contribute to higher wage demands across the country".
What has changed is that long term interest rates are starting to rise now, not just for the government, but also for businesses and home owners with a mortgage.
The fear of an "inflationary spiral" is that these rises will start to accelerate. Short term interest rates set by the Bank of England are now expected to hit 2.5-3%, continuing tomorrow, as the Bank tries to grapple with inflation exceeding 8 or 9%.
And yet at this very same moment, economists are starting to forecast the same cost of living crisis beginning to send the economy into reverse. There is no rocket science here. What could reach £40 billion worth of consumer energy cost hikes, the equivalent of an 8p rise on the basic rate of tax, has been only fractionally mitigated by government support.
This money is coming straight out of household disposable income at the same time as tax rises. This puts real consumer spending power on course to fall by the most seen since the 1940s - in just one year.
The confidence of UK consumers in the economy and their finances is suffering. The five-decade old market research firm GfK's survey found customer confidence to have fallen to one of its lowest levels since 1974.
In the current three month period of April to the end of June, some economists fear zero growth in the size of the economy, or even a fall, after taking into account the extra Jubilee Bank Holiday. Recession risks are rising, even as rates are rising too.
This is the "narrow path" the Governor of the Bank of England says his institution has to tread in the coming months, as both growth and inflation are sent in the wrong direction, at precisely the same time. But it is a path that could force British households even further away from their normal course.
Source: BBC News
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"To sum up the past, present and future, you could put it like this. In the past, the Treasury needed a bailout from the bank of England in 2008 and 2020.
Now the Bank of England will need a bailout from the Treasury because of the losses it will incur on the bailout of 2008 and 2020. (My edit: with its planned sale of Government bonds, whose value has been falling and falling.)
And in the future, the Treasury will need a bailout from the Bank of England in order to finance a bailout of the Bank of England.
No wonder MNI reported that the government tried to keep the Bank of England’s indemnity a secret! It sets up a self-enforcing downward spiral in the balance sheets of the government and the central bank."