There are plenty of potential mistakes Rishi Sunak needs to avoid in the Budget

Beyond often gnomic “forward guidance”, the Bank of England is usually reluctant to give too much away about interest rate decisions, and understandably so.

Much can happen in the course of a few months in a dynamic economy even in normal times. Factoring in the effects of Brexit and the Covid-19 pandemic adds to the uncertainties even more. These are, obviously, unprecedented times for policy makers, but the Bank’s governor, Andrew Bailey, and its chief economist, Huw Pill, have made little attempt to dissuade the markets from their assumption that interest rates will be raised by the end of the year.

Even if they moved, in relative terms, tenfold, from the current 0.1 per cent to 1 per cent, that would still represent a near all-time record low. Much the same effects would be seen in market interest rates for businesses and home buyers if the Bank partially reversed quantitative easing.

No doubt it is necessary to do so to prevent the even greater damage caused by a wage-price spiral – meaning even harsher action later on – and the Bank will be moving, presumably in baby steps, along the path to more normal monetary policy; something which has been suspended since the height of the financial crisis in 2008 and 2009. A historic period of ultra-cheap money is drawing to a close.

It will, though, be tough on hard-pressed households and businesses used to lower rates, and will shake already fragile business and consumer confidence. That is the desired effect, in terms of deterring price increases, but poorer families will feel the squeeze on top of all the well-advertised hikes in fuel costs, energy bills and food. As has been clear for some time, support for the most financially precarious is nothing like adequate enough, and especially as winter grows closer.

Though entirely expected, it will also make Rishi Sunak’s task in framing the Budget on Wednesday that much more difficult. Although a healthy portion of the national debt is fixed on low interest rates and long maturities, a general trend to higher rates will make government borrowing more costly – adding to the pressures on the public finances. There should be some unexpected leeway for the chancellor because the economic bounce back has been livelier than predicted, but it has been losing a little momentum, and shortages, especially of labour, will also contrarian growth, and thus tax revenues.

Indeed the pressures on public spending and taxation may intensify in the medium term, even if the chancellor makes no radical moves. As the Institute for Fiscal Studies points out, the substantial tax rises announced a few weeks ago to fund health and social care will merely allow services to keep up with demand – and no more.

There are ugly rumours that Mr Sunak could potentially cut overseas development aid even more. Meanwhile there is no sign of any equitable treatment of online and traditional retail businesses, still less of a comprehensive overhaul of business taxes. If Mr Sunak thinks the answer to Britain’s problems is to cut local authority spending even more, as suggested, then he has little understanding of what damage the decade of austerity under his immediate predecessors has done.

During the financial crisis, the Great Recession and then the pandemic, Mr Sunak and his predecessors in all parties had a difficult job to do, balancing fiscal rectitude without crashing the economy. Now, though, post-Brexit and with an acute shortage of labour and incipient inflation, the difficulty of the task has multiplied.

There are no right answers, in fact, but there are some obviously bad choices that he should avoid.