Introduction
Inflation is a significant point of concern for all experts in the economy, as well as for ordinary citizens. The rise in consumer prices, which is not comparable to the values of the next few years, has a significant impact on consumer behavior and business. In order for society to survive this period most adequately and to create a favorable backdrop for the exit from inflation, the government and the Bank of England need to take many steps. All of the steps to be taken as part of economic policy include supporting real-asset businesses, targeting support for narrow groups of people, and creating a risk framework for each group of basic commodities.
Discussion
In order to understand how measures to combat inflation will work, it is necessary to consider the mechanisms of the latter’s impact on the country’s economy. Rising prices imply higher prices for raw materials, the need for higher wages for employees, and higher interest rates (Jiranyakul, 2020). A particularly noticeable effect of inflation has been how difficult it is now to build nonprofitable medium and small businesses in the UK. Researchers note that business confidence among residents has declined by 10% over the past year, which is also a record (Kidane and Woldemichael, 2020). If large entrepreneurs manage to offset the effect of rising commodity prices by the scale of their businesses, but smaller forms of business need support from the government.
The most obvious course of action from the government is to give entrepreneurs tax breaks for a period of up to 6 months. This would be enough time to track the effect of this measure on the entire economy. Moreover, special attention should be paid to those forms of entrepreneurship that are engaged in real assets (Bonaparte, 2022). The latter include real estate, work with energy, and commodities (Han, Ma, and Mao, 2020). These industries react quite quickly to inflation since rising prices directly affect the products they produce (Orchard, 2020). A useful measure on the part of the government in this case would be to authorize an increase in spending that exceeds inflation. This will enable managers to ensure that prices are kept in check for a period of time.
On the part of the Bank of England, there is a rather radical option to artificially restrain prices, but this step can only be effective in moments of discontinuous change. Since the international market environment does not currently suggest a change in the situation, one could argue for a prolonged inflation in which price controls on all goods would be untenable. Nevertheless, both the bank and the government can organize a joint effort to keep a close watch on the prices of specific groups of goods belonging to the sphere of necessities. The latter may include bakery products, dairy products, medicines, and repair equipment (Khan and Naushad, 2020). For each segment, the Bank of England’s financiers must define price limits within which prices can fluctuate without causing critical damage to consumer welfare.
In the event that the upper boundary is crossed, spot price regulation must be included. For this step to reveal its effectiveness, it is important that bank management fine-tune the financial analytics process. Moreover, this task can be partially delegated to various agencies, and there should be cooperation between the ready-made ones (Hanif et al., 2020). The relevant government agencies should each week form a forecast of the prices of certain segments of goods on the basis of the indicators of the world economy. From the above measure follows the idea of the necessity to develop forecasting processes in state economic organizations.
As part of the bank’s monetary policy, we should note the buying up of government liabilities through the additional issue of notes. As a consequence, banks will be more interested in issuing loans, while maintaining a high demand on the part of consumers. Such a policy is quite common and has repeatedly shown its effectiveness. One cannot ignore the option of government support for certain groups of the population, whose economic activity has been most significantly affected by inflation (Allen, 2022). Often residents of regions connected with the extraction or production of specific raw materials and without a large number of local factories and plants are forced to face a double or triple increase in prices compared to other areas (Grigoli and Pugacheva, 2022). For example, parts of the country that do not produce their own dairy products purchase this type of product at an increased cost due to transportation costs. With inflation, not only the cost of goods but also transportation, therefore, people are faced with even greater price increases.
Such a segment of the population needs special support from the state, and in this case, we can talk about subsidizing on a one-time or regular basis. The selection of population groups in need of financial support from the government can be made according to various criteria (Eberly et al., 2021). In addition to the region of residence, the sphere of activity can be taken into account (Ramlan, 2020). When the prices of construction materials are particularly high, professionals involved in this industry may be rewarded with additional payments, which will allow them to be motivated to stay in the profession and not leave the company.
The loss of people’s jobs due to the collapse of firms unable to withstand inflation is an important component that makes it more difficult to fight inflation in general. To ensure that unemployment does not develop in the face of rising prices, the government should provide for the introduction of insurance benefits for people who lose their jobs because of inflation (Eberly et al., 2021). This policy, applied several years ago in France, has shown its effectiveness, because thanks to such payments, it was possible to maintain a sufficient level of demand for goods and services.
A significant instrument of monetary policy is the refinancing rate. The refinancing rate is the amount of interest per annum payable to the country’s Central Bank for loans to credit institutions. These credits are the refinancing of a temporary shortage of financial resources. Such credits regulate the liquidity of the banking system in case credit institutions lack funds to credit their customers and fulfillment of assumed obligations (Murasawa, 2019). The refinancing rate of the Bank of England has traditionally been a tool of macroeconomic regulation, which is also used to curb inflation (Patel and Meaning, 2022). If the inflation rate increases, then the Bank increases the refinancing rate. If inflation falls, then the Central Bank lowers the refinancing rate. It is important to note that in the short term, anti-inflationary policies increase unemployment and reduce output. While the government reduces government spending and cuts the money supply, prices fall (Hall, 2021). However, wages remain unchanged. Under these conditions, firm profits fall, so the firm reduces output, and hence employment decreases.
When analyzing the anti-inflationary activity of the state, it is necessary to distinguish between the concepts of policy and strategy in the fight against rising prices. The latter has no direct impact on the economic life of society and does not affect consumer behavior in the short term. In terms of an anti-inflationary strategy, it is important for the government to ensure the reduction of inflation expectations (Goodhart and Pradhan, 2020). This measure can be achieved by issuing money, increasing the regulation of financial and economic activities by the state, stabilizing market mechanisms, as well as reducing the role of external factors affecting the economy.
As part of an anti-inflationary strategy, a program of measures, will describe in detail all the existing for a particular situation and analyze the expected results. For the current conditions in the UK, an important step to help reduce inflationary expectations will be to limit the flow of new finance into the economy. This requires that loans become unprofitable for large businesses, resulting in an increase in the number of funds on deposit. In order to avoid a global economic downturn, the credit activities of individual citizens can be on the contrary supported (Goodhart and Pradhan, 2020). In order to reduce the level of external interference in the economy, it is important for the government to organize control over the activities of exporters, which will help detain capital inside the country. The proposal should also include the above-mentioned measures to limit the maximum allowable price of socially important products.
In terms of short-term measures that would allow the government to reduce the impact of a price hike relatively quickly, the option of market imbalance can be highlighted. The latter consists of a sharp increase in demand without an increase in supply, or, conversely, an increase in supply with unchanged demand. The eye-opening tools for this type of measure would be various tax mechanisms, including tax cuts or increases, and changes in the way taxes are levied. Moreover, the elimination of the state’s debt to individual industries can be carried out, as well as changes in the distribution of funds among the various subjects of economic relations within the UK.
Conclusion
Thus, the development of anti-inflationary measures by the government and the Bank of England should be based on the principle of multifactoriality of this phenomenon. The main task should not be to reduce the rate of price increases in the shortest possible time but to create the most painless environment for citizens, within which the anti-inflationary measures will be carried out. Such phenomena as reduced solvency of a large percentage of the population and the unprofitability of small and medium-sized businesses must be taken into account. On this basis, the anti-inflationary strategy may include measures to stabilize market relations, taking into account social policy. It is necessary to timely monitor which groups of important products exceed the permissible price level, as well as which segment of the population is most affected by the consequences of rising prices. Only consistent and careful action by the Bank of England and the government will ensure a gradual, if gradual, but guaranteed and painless exit from years of record inflation.
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