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Still on the bridge

It’s that time of year when students return to uni, which meant the panic buying of fuel coincided most unfortunately for me with an unavoidable and long car journey at the weekend. It was a struggle to get petrol, and on the long distance round trip we passed as many petrol forecourts blocked off by orange cones as we did ones with queues of cars. It feels as though the situation has worsened, not improved, in the few days since then.

Pay, working conditions, red tape, hostile attitudes, drivers quitting in droves following the Covid lockdowns, the failure to train and approve new HGV operators combined with a Brexit-inspired exodus are among the mix of reasons behind the tanker-driver shortage. If only the solutions were as numerous. Currently they seem to amount to two: the army or 5,000 emergency work permits for overseas drivers - or 100,000 if you are Labour leader Kier Starmer.

That 100k figure is one estimate of the UK’s current driver shortfall and even if it’s not accurate it suggests a rather terrifying lack of planning by various departments, organisations and employers. Beyond the fuel-supply issue though lurks the worry that the driver shortage is one more force that will push up the prices of goods and services. Increases which will come on top of soaring shipping costs, and sky high gas price rises for businesses and consumers.

Oil prices have surged past $80 a barrel – a three year high – thanks to output disruptions and high demand. Shortages are afflicting the construction sector too with the ONS revealing that more than one in three businesses in this industry have either not been able to get the materials, goods or services they needed from within the UK, or had to change suppliers to do so.

Even the shutting down of two of the UK’s big industrial fertiliser plants – a direct result of the surge in the price of gas – which has in turn turned off the UK’s CO2 supply, is a new unexpected inflationary factor. Because while the government is paying the manufacturers to resume production, it’s only doing so until the price of this little noticed but widely used commodity rises sufficiently to encourage the resumption of production without state aid.

There is now an expectation that inflation will stay at or above 4 per cent for several months with a possible base rate rise early in the new year.

Andrew Bailey, governor at the Bank of England, commented this week that despite one of the largest economic downturns in history as a result of the pandemic, the UK has not suffered a notable major upturn in unemployment or any substantial corporate distress. But corrosive increases in costs, and the lack of supplies generally, are a threat to the UK’s economic recovery which is already running out of steam. The coming months will reveal what employers who have used the government’s job retention scheme decide to do with their furloughed workers once the scheme closes this week, and those decisions will be based on the economic outlook.

Now, markets don’t often mind what’s happening in the economy, and particularly so when the money taps are gushing, but they do obviously mind what actions central banks hint they will take action in the future.

Bailey also reminded us how he and the MPC members had described the economic policy tools being used to get us to the “other side of Covid” as a bridge. It’s a nice analogy but it feels as if the other side is further away than ever – or the bridge is getting longer. Let’s hope as a structure, it proves sturdy enough for the expansion of the task.