Irish Examiner view: Consumers face the fallout with a challenging week ahead

Interest rates, gas supplies, and a selection campaign for the Tory leadership

Rishi Sunak is the current favourite to win the Tory leadership race.

We are entering week 29 of 2022. We have crested the summit and some people might argue that it is all downhill from here.

This week three decisions may be made that will influence us for the remaining 166 days of this year. One has its roots in capitalism. The second is a consequence of communism, and the third an unresolved matter of conservatism. We cannot control or change them, but we may have to face the fallout.

The danger from capitalism emanates from central bankers. The ECB is set to increase interest rates as part of an endeavour, most likely doomed given what is happening elsewhere, to control inflation.

But the greater concern is that US interest rates are heading north rapidly. The Federal Reserve could push up its base rate by as much as one percentage point this month into a range of 2.5%-2.75%, ending a decade or more of cheap money which was introduced to promote growth. To place this in context, this will be more than double the current Bank of England’s 1.25%. The Fed says it is determined to tackle inflation until it is “defeated”. 

The price for that may be paid by European consumers and mortgage holders and by highly vulnerable emerging countries. As currencies, including the euro, sterling, and yen, lose value, the cost of commodities and imports, many paid for in dollars, will increase inflation.

Joe Biden, whose fist bump with Mohammed bin Salman, the Saudi crown prince, will be seen as a defining symbol for his presidency, and not in a positive way, fears that inflation will favour the Republicans in the forthcoming mid-term elections. High interest rates decided in Washington will bring recession to the world and not salvation.

If that is what our capitalist friends can do for us, then what does the Kremlin have to offer this week?

This Thursday is the date to circle in your diary. It’s the day that the gas supplies from the Nord Stream 1 pipeline, shut for its annual maintenance, are due to come on stream again. Its output has already been cut to less than 40% of capacity and a major question arises as to whether Vladimir Putin will switch it back on again while EU members are attempting to fill their storage tanks for winter.

The potential nightmare for the West is that Moscow, given that it appears incapable of winning the war on the ground in Ukraine, may up the ante, not by using its nuclear capability but by switching off oil as well as gas as a means of splitting allies irrevocably. Putin hinted at this last month and his Treasury is currently awash with fossil fuel cash. It will create maximum havoc, a shock-and-awe attack on the world’s economic systems.

The third geopolitical development we must watch is closer to home when the selection campaign for the leadership of the Conservative Party is winnowed down, and we will have a clearer view as to the final candidates to become prime minister of our nearest neighbours.

On Wednesday, Tory MPs will vote and candidates with fewer than 30 backers will drop out. On Thursday, a second round will take place, and the person who comes last will be excluded. The campaign is taken to the membership for a final decision on September 5. Of the four leading runners and riders, three are women; one is of African heritage and the current favourite, Rishi Sunak, is of Afro-Indian descent. 

Penny Mordaunt, who is the top polling choice among supporters in the country, had a grandfather who went to school in Dublin and Limerick and became a sergeant in the South Irish Horse, one of the regiments disbanded, 100 years ago next week, following the creation of the Irish Free State.

The diversity of the leadership election may be a surprise, given the projection of Brexit as an essentially racist device by many commentators. Of the five remaining candidates, three voted to leave the EU, including Sunak and Mordaunt, and two voted to remain. Ireland needs to see, from whoever takes the keys to 10 Downing Street, commitment to a reset of the relationship with Britain. That is a crucial matter when the fog of battle has cleared. Before then we may have financial and energy supply matters to cope with. And they are tasks enough.