Stop Calling This Economic Management
Britain is using demand destruction to compensate for supply vulnerability. It needs to change the machinery that keeps producing the crisis.
On 5 November, the Bank of England raised interest rates by a quarter of a percentage point to 4 per cent. The immediate explanation was familiar enough. Conflict in the Middle East had pushed global energy prices higher, UK inflation had risen to 3.5 per cent, and the Bank expected it to approach 5 per cent by the middle of next year. Although there was still limited evidence that the shock was spreading into wider prices and wages, all nine members of the Monetary Policy Committee voted to increase rates. One wanted a larger rise. Swati Dhingra described the quarter-point increase as “additional insurance”. [1]
That insurance has a premium. It is paid through mortgages, business loans, postponed investment, weaker consumer demand and the employment decisions that follow. The Bank cannot produce another therm of gas, reopen a blocked supply route, insulate a home or build a power station. It cannot stop a foreign government funding violence, redesign Britain’s electricity market or reduce the country’s dependence on internationally traded fuels. Its instrument works somewhere else. It makes domestic money more expensive so that households spend less, companies borrow and invest less, and workers have less scope to recover through wages what they have lost through higher prices.
The imported price increase remains. The rest of the economy is weakened around it.
There is a respectable economic case for doing this. If an energy shock feeds into expectations, wages and repeated price increases, temporary inflation can become persistent. Monetary policy operates with a delay, so waiting for conclusive evidence may mean waiting too long. The Bank is therefore trying to prevent the initial shock from propagating throughout the economy, rather than pretending it can reverse the shock itself.
But that distinction should make us more demanding, not less. An interest-rate increase may be a defensible act of monetary policy while still revealing a profound failure of economic management. Britain is responding to the consequences of energy dependence by making domestic investment more expensive, including the investment required to become less energy-dependent. We should stop confusing management of the symptom with competence over the system that produced it.
The price was never real
The Office for National Statistics estimates that the average UK household spent £676.60 a week in the financial year ending 2025 - just over £35,000 a year. [5] Treat that £35,000 as the apparent price of sustaining an ordinary household. It is only possible because the economic system accepts everything beneath it: the source of the energy, the regime receiving the revenue, the security arrangements protecting supply, the environmental damage left outside the transaction and the public expenditure required to deal with the consequences. The £35,000 records what changed hands at the point of sale. It does not tell us what those transactions enabled upstream or what society must pay elsewhere to keep the arrangement functioning.
For years, Britain and much of the West became accustomed to energy arriving with remarkable reliability. The price appeared to confirm that the system was efficient. In reality, some of the cost had been displaced into polluted environments, dangerous dependencies, military commitments, insecure livelihoods and political accommodation with governments whose behaviour we claimed to oppose. The moment a conflict, sanction, damaged route or policy decision interrupts that easy flow, the price rises and the country panics. We call the increase inflation, but part of it is the arrival of costs that the original £35,000 never contained.
The money also continues travelling after the transaction. A payment for energy becomes revenue for producers, intermediaries, owners and states. It can support investment and legitimate public services. It can also sustain corruption, coercion and violence. The cheap commodity and the system financed by it are not separate economic subjects. They are different stages of the same circuit.
Iran provides a concrete example. In April, the US Treasury sanctioned what it described as a shadow-banking architecture moving tens of billions of dollars associated with sanctions evasion and illicit oil sales. According to the Treasury, these networks helped Iran’s armed forces access the international financial system, purchase sensitive components and transfer money to terrorist proxies. [2] This is an official American assessment and should be treated as such, rather than as a complete account of every transaction in the region. But the underlying economic relationship is not difficult to understand. Commodity revenues do not lose their consequences merely because the consumer is several transactions removed from their source.
Britain’s exposure does not depend upon buying a barrel directly from the actor causing the disruption. Oil and gas are traded through interconnected markets. Remove supply in one place, obstruct a route or increase the risk of moving it, and buyers compete more intensely for what remains. Diversifying suppliers may reduce exposure to a particular producer, but it cannot insulate an economy from the international price of a fuel it still needs.
If confronting a corrupt or violent network threatens the affordability of ordinary life, that dependence is a strategic weakness. It should have appeared as a cost before the crisis, when continued access still looked cheap and investment in alternatives was being judged against it. Yet Britain keeps no serious public account of the regimes, routes, security commitments and displaced damage embedded in that apparent cheapness. Government publishes the price increase when the arrangement breaks, but not the liabilities accumulated while it appeared to work.
This blindness is not passive. Maintaining it avoids an uncomfortable admission: part of the affordability we became accustomed to depended upon looking away. Telling the truth would require government to explain that the old price was incomplete, that resilience has a cost and that decades of delay have made the eventual adjustment harder. Instead, ministers preserve the blindfold, react to each disruption as though it were an isolated event and leave households to experience the concealed liability as another inexplicable rise in the cost of living. It is politically weak, economically dishonest and apparently endless.
How the shock reaches the household
Britain’s electricity market provides another piece of the wiring. Generators offer power into the wholesale market. Cheaper sources are used first, but the price for a given period is generally set by the most expensive generator still needed to meet demand. Gas-fired generation often occupies that position. An increase in the price of gas can therefore influence the wholesale price of electricity beyond the share actually generated from gas. Ofgem describes this marginal-pricing mechanism explicitly. [3]
This is not a law of nature. It is a market design operating within a physical system that still lacks enough renewable generation, storage, network capacity and flexibility to avoid frequent reliance upon gas. The Commons Energy Security and Net Zero Committee recently called for faster work to reduce gas’s disproportionate influence over electricity prices. It also challenged the way policy and network costs are passed to households, arguing that consumers cannot continue carrying the transition through poorly explained additions to their bills. [4]
Now follow the shock into an ordinary business. Its energy costs rise. Its suppliers face similar pressure. Customers have less disposable income. The company can absorb part of the increase through lower margins, raise prices, reduce employment, postpone equipment or abandon expansion. A household encounters the same system through heating, transport, food, rent or mortgage payments and the security of its employment. The inflation figure records the changes arriving at the end of these relationships. It cannot tell us whether the economy producing them has been competently organised.
The Bank then adds another pressure. Borrowing becomes more expensive and asset values may weaken. Households with mortgages reduce spending. Companies reconsider investment. Demand falls, labour markets soften and firms find it harder to pass higher costs onwards. This is how the policy is intended to work. The language of transmission mechanisms can make the process sound clinically mechanical, but the transmission runs through human lives and business decisions.
Threadneedle Street is not the organ grinder. It is the most visible monkey in a much larger performance. The Treasury, regulators, energy-market designers, planning authorities and financial institutions have spent decades shaping the economy upon which monetary policy now operates. The Bank arrives near the end of that chain and pulls the lever it controls. The fact that the lever sometimes needs to be pulled does not absolve the people responsible for everything connected to it.
The premium for “additional insurance”
The November decision exposes the problem unusually clearly. The Monetary Policy Committee acknowledged that there had been little sign so far of indirect effects from higher energy prices across other goods, while broader wage and price pressures remained limited. It nevertheless judged that the prospective risk justified tighter policy from an already restrictive position. [1]
Insurance is purchased because the cost of an adverse event is uncertain but potentially serious. A competent purchaser still asks what the premium costs, who pays it and whether the policy creates new risks elsewhere. In this case, the premium falls unevenly. A household refinancing at the wrong moment carries more of the adjustment than an outright owner. A productive company seeking finance is restrained alongside discretionary consumption. A younger worker exposed to weaker hiring absorbs a consequence that does not appear in the energy price or the Bank’s balance sheet.
Most importantly, the policy can obstruct the physical response Britain needs. Insulating homes, strengthening electricity networks, building generation and storage, modernising equipment and developing skills all require expenditure before their benefits arrive. Higher rates make some of those projects harder to finance. Investment is certainly spending today, but it is also the means through which tomorrow’s productive capacity is created. An instrument designed to suppress current demand does not reliably distinguish between consumption that adds pressure and investment that removes the source of future pressure.
This is the contradiction at the centre of current policy. An energy-dependent country suffers an energy shock. Its central economic response makes the investment required to escape that dependence more expensive. Then, when the next shock arrives, officials explain that the country must again accept the necessary medicine.
Stop calling this economic management.
The machinery Britain actually needs
The Bank has a defined responsibility for price stability. It should be challenged on the judgement, timing and distributional consequences of its decisions, but it cannot build a national economic strategy by adjusting Bank Rate. That responsibility belongs principally to government. The failure is not that monetary policy exists. It is that monetary policy has become the most credible part of an economic architecture that apparently has no coherent idea what the country is trying to build. Britain has inflation targets, fiscal rules, regulatory settlements and departmental budgets, but no agreed account of the productive foundations they are meant to strengthen. The machinery is busy. The destination is missing.
Britain needs a more demanding definition of economic success. Higher property valuations do not necessarily mean better housing. A profitable transaction does not demonstrate that its full costs have been covered. More financial claims on future income do not guarantee greater capacity to produce that income. Low inflation can coexist with deteriorating infrastructure, depleted resources, weak skills and dangerous dependence upon systems outside the country’s control.
A serious national balance sheet would make those conditions visible. It would show whether Britain is maintaining and improving the foundations from which future income must arise: people’s health and capabilities, knowledge, infrastructure, productive organisations, energy systems and the living environment supporting economic activity. It would record critical dependencies and expose costs displaced onto households, other countries and future governments. These accounts should influence taxation, regulation, borrowing and investment decisions with real consequences, rather than remain supplementary information beside the financial measures that command attention.
The distinction between consumption and capacity-building must then enter economic policy. Borrowing to sustain expenditure without improving the country’s future position is not equivalent to financing infrastructure or capabilities that reduce future costs and exposure. Both create financial liabilities, but they leave very different assets behind. Fiscal rules, project appraisal and public accounts should recognise that difference without abandoning discipline over delivery, value or debt.
Strategic exposure must also be valued before it becomes a crisis. A project that reduces reliance upon volatile fuels creates benefits beyond the revenues captured by its owner. It may lower future price exposure, improve national security, reduce public-health damage and protect the wider economy from disruption. Those benefits should be included when government decides whether a project is worthwhile and how its risks should be shared. The same accounting should identify businesses whose attractive returns depend upon leaving substantial costs elsewhere.
Britain also needs an investment channel capable of preserving credible capacity-building when general monetary conditions tighten. This is not an argument for cheap money for every ministerial enthusiasm or badly prepared project carrying a green label. It is an argument for identifying the investments the national balance sheet shows are necessary, subjecting them to demanding tests, and financing them on terms aligned with their economic life and public value. Development finance, guarantees, long-term contracts, procurement and regulated returns can each play a role, provided their costs and risks remain visible.
Energy is the immediate test. Britain needs a financed programme connecting efficient homes, generation, storage, networks and the workforce required to deliver them. Market reform must reduce the frequency with which expensive gas sets electricity prices. Investment costs must be allocated transparently, with households able to see when and how they will receive the benefits. Planning, grid connections and financing cannot continue operating as separate obstacles while government publishes targets as though announcing capacity were equivalent to building it.
The institutional responsibilities may be divided, but their consequences meet in the same household and company accounts. The Treasury determines taxation, spending and the fiscal framework. Regulators shape markets and permitted returns. Planning and infrastructure decisions determine what can be built. Financial institutions direct capital towards the opportunities those rules create. The Bank changes the price of money. Economic management requires these decisions to be assessed together against the condition of the economy they leave behind.
Change the machinery
Britain’s economic managers have become remarkably accomplished at explaining why people must absorb the consequences of arrangements they did not design. Energy becomes more expensive, household budgets deteriorate, businesses struggle and the Bank makes borrowing more expensive. We are told that the additional pressure is necessary to restore stability. Somewhere in this sequence, responsibility for building an economy less vulnerable to the disruption disappears.
The country should judge its economic managers by whether they leave it more capable of sustaining a decent life through uncertainty: fewer dangerous dependencies, stronger productive capacity and a fairer allocation of unavoidable losses. That requires people willing to examine the connections between markets, ownership, finance, security and public power, then change the rules where those connections repeatedly fail us.
Another explanation of why households must spend less will not meet that test. The Bank can restrain inflation while Britain remains exposed to the next crisis. The Treasury can satisfy a fiscal rule while the national balance sheet deteriorates. Regulators can approve investment while bills remain incomprehensible and the underlying system stays fragile. Each institution can perform its assigned task while the country as a whole becomes less capable.
Making people absorb the machinery’s repeated failures is not economic management. It is what happens when economic management has failed.
Sources
2. US Department of the Treasury, Economic Fury Targets Iran Shadow Banking Facilitators, 28 April 2026.
3. Ofgem, Wholesale energy costs and your bills, 2026.
5. Office for National Statistics, Family spending in the UK: April 2024 to March 2025, 11 June 2026.
This essay began as a line of enquiry developed through the work on Value2Society. ChatGPT was used as a thinking and editorial partner, testing the argument, challenging its edges and helping shape it for publication.