The lorry driver shortage will soon put an end to our falling prices

The Bank of England’s Monetary Policy Committee has been powered by the wings of a flock of interest-rate doves for a long time now.

Even the most hawkish of its members, Andy Haldane, didn’t dissent when it came to keeping rates at their historically low 0.1 per cent during his last few meetings as a member of that august body, despite giving speeches warning of the danger of the inflation wolf, now busily sharpening its claws.

He chose to show his concern through dissenting votes on the bank’s programme of government bond purchases during both the May and June meetings (the latter being his last) instead.

August’s inflation figure, which showed a surprise fall to 2 per cent, surely kept his colleagues cooing, perhaps not entirely contently, but cooing all the same.

Things are, however, shaping up to get interesting, and not in a good way.

“Higher prices loom,” the British Retail Consortium (BRC) declares this morning upon the publication of the BRC-Nielsen Shop Price Index.

The figures don’t, on the face to it, look like something the good Mr Haldane could have used to frighten the bank’s junior economists into behaving while he was in situ. Shop prices in August fell year on year, as they have been doing for some time.

There was, however, a notable easing in the pace of decline. Non-food price deflation, for example, slowed to 1.2 per cent in August, compared to 1.8 per cent in July. That’s considerably slower than the six and 12-month average falls of 1.8 per cent and 2.6 per cent respectively.

Food price deflation declined by 0.2 per cent in August from July’s deflation of 0.4 per cent. Prices month on month, meanwhile, showed a small rise.

These figures can, of course, be choppy. But it’s worth noting that the BRC’s economist Liliana Danila thinks that prices will be rising consistently this autumn.

You can probably guess what the trade body is saying in response to all this: our members are working terribly hard to keep costs down for the consumer but the truck driver shortage is adding fuel to an inflationary fire that was starting to get going through rising commodity and shipping costs as well as the ever-present Brexit-related red tape.

This is actually very similar to what the CBI has to say on the back of its latest growth indicator, which is also released this morning and looks just dandy on the face of it. Activity rose across the private sector, which grew at its fastest pace since May 2014 in the three months to August. It just isn’t likely to stay that way.

The reason? You’ve guessed it: those labour shortages again. Plus some of the other stuff too.

“In some cases, these shortages are having a material impact on operations. Meanwhile, disruption to global supply chains during the pandemic has led to sharp rises in material and shipping costs,” said Britain’s leading business group.

Those rises are, of course, going to be passed on if possible. So how bad will it get? Well, that’s the big question.

The Treasury had just better hope that those labour shortages, especially the HGV driver shortages, are as temporary as some have claimed they will be, that the Brexit red tape stops strangling businesses (good luck) and that the pandemic calms down a bit (good luck again).

Given all those 9-0 votes on interest rates, and 8-1 votes on bond purchases, it’s very early days to be talking about rate rises. Borrowing will remain cheap for individuals, corporates and the state for a while yet.

But here’s the thing: it would only take one new hawk to emerge from within the committee’s ranks, and for them to spread their wings with a dissenting vote, to spook the markets, which would inevitably push the state’s borrowing costs higher in response.

Given the stock of debt he’s sitting on, that would, obviously, limit chancellor Rishi Sunak’s room to manoeuvre with a difficult public spend round looming and tensions between him and his boss running at an uncomfortably high level.