How worried are central bankers about these price rises?

To an extent, the price rises are inevitable because the increase in energy price is immediately going to start getting reflected in fuel prices and potentially prices of food and other commodities.

So we would expect a movement in headline inflation in any case.

What the central bankers are more looking for is whether there are so-called second-round effects.

So does this start to affect wage setting? Does it start to affect the wages that workers demand? Does it compel companies to start raising the prices of other products in the economy? And does that create a kind of self-fulfilling momentum in inflation? Now, I don't think we see any of that yet.

It's way too soon.

But they are worried because clearly there's a risk of that happening.

Walk us through some of the latest data.

So how can they game out monetary policy without that clarity?

Well, the answer is that they are unlikely to offer greater certainty than they can realistically provide.

And so I would expect that they start to pull back in terms of offering guidance on the next move and instead talk a lot more in terms of watching and waiting, careful monitoring, being committed to their inflation targets.

And you could start to hear a bit more in terms of scenarios as well.

Bank of England being one of the central banks that talks a lot about scenarios, but you hear them sometimes from the ECB as well.

If, say, the oil price remained at current levels for X months, then this might be the implication for our forecast.

If, on the other hand, energy prices reversed very rapidly, there might be a different outcome in terms of our forecast.

Are there some factors that are different this time around? In some instances, are we better prepared to deal with an unexpected shock like this? Are there lessons that we learned, central bankers learned from twenty twenty-two?

Now, we're not expecting a ton from it, and the FT's economics editor, Sam Fleming, explains that for Reeves and her Labour Party, right now, no news is good news.

When Rachel Reeves came to power back in twenty twenty-four, she set the goal of having only one big fiscal event a year, and this was an attempt to create some more stability in the public finances.

And that didn't come off initially because after her first budget in October twenty twenty-four, she then was forced into a fiscal correction only a few months later.

And then the lead up to the budget of last November was extremely tumultuous, lots of speculation, lots of leaks, and she now wants to kind of create a sort of a more, a more placid fiscal playing field i-in the hope that this will create better conditions for economic growth.

What's been the response there?

When the OBR accidentally released, uh, its budget report, there was a lot of volatility in the markets as you'd expect.

The markets seem to have settled a fair bit since then and have broadly been fairly calm in response to this budget.

And I think the reasons for that are firstly, the decision of the chancellor to strongly increase the amount of headroom she holds against her fiscal rules.

And I think broadly they were reassured by the economic outlook, despite the downgrade to productivity growth wasn't as bad as they'd ha- ha- had been led to expect.

In particular, there were quite a lot of cross-currents in the OBR economic forecast which helped revenue even as the productivity downgrade hurt revenue.

And that meant that really the economic forecast was overall relatively benign going into this budget, and that gave Rachel Reeves the space she needed to boost her budget headroom.

How is this going to impact British citizens?

So Sam, I gave a, a little nod to how QE works, but can you tell us more about it and why central banks started to use it?

Sure.

So QE started really around 2008, 2009 there during the teeth of the great financial crisis.

Central banks have long used their balance sheets and lender of last resort operations, kind of targeted emergency interventions when there's a particular crisis in a sector.

But what happened in QE was a much wider, uh, monetary operation where central banks judged that lowering interest rates, which is their primary tool, wasn't gonna go far enough, and they needed to do more.

As you said, they purchased government bonds.

They also bought private sector securities, mortgage-backed securities, for example.

Is there any concern that the opposition to QE could go too far? I mean is, is there any room for QE still in the central bank's toolkit?

Sam, what exactly are they saying?

No, you're right.

I mean, we're starting to hear, uh, during the earnings calls, uh, especially consumer-facing companies, the big players talking about concerns about consumer sentiment and concerns about pricing, um, there's also been private warnings by retailers that, uh, given just how vertiginously high the tariffs on China are, that this, you know, could stop the supply of certain goods coming into the US and therefore lead to empty shelves.

Um, shipping analysis, um, points to lots of canceled transpacific voyages of container ships as well.

I mean, it's just really important to stress how high these tariffs on China are, 145% tariffs.

And this is going to hit people in the pocket, there's no doubt about that.

It's a question of when, not if, assuming there isn't a climb down.

Sam?

Now, we should probably say that most of the tariffs Trump announced on Wednesday haven't gone into effect yet, but still, what are some of the alarm bells that are going off?

Right.

Well, so we'll see obviously an impact on, uh, global trade flows, uh, as a result of these very high barriers being imposed by the US on, uh, its closest trading partners.

The US consumer is gonna see a sharp increase in the prices they pay for a whole range of products.

I mean, China, for example, is a, a major supplier to the US market, an enormous range of consumer goods, and the package that the president's announced amounts to a 54% tariff.

So this is a extremely systemic change to a very, very wide range of US products.

At the same time, there is ongoing and continued uncertainty about what exactly US trade policy is, where it's going, how much of this will be implemented.

How does the possibility of a recession, plus what we know about these tariffs, complicate the picture for the Federal Reserve? I mean, the, the Central Bank has spent a lot of time trying to lower US inflation coming out of the pandemic and these tariffs are largely seen as inflationary.