Simply put, you cannot undo a decade and a half of excessive cheap money policies in a short space of time without there being severe consequences. In the aftermath of the 2008 Global Financial Crisis (GFC), exceptionally low interest rates and excessive quantitative easing were the hallmarks of policy in most Western economies, including the UK.

It is important to understand that cheap money has not only fed asset price inflation and contributed to the current bout of inflation, but it also had a distorting impact on the financial sector. As I highlighted in the The Guardian in 2021 and noted in the Financial Times early last year: “cheap money policies, through low policy rates and its quantitative easing programme of asset purchases, have contributed to financial market instability. Low policy rates led markets not to price fully for risk, encouraging speculation. Meanwhile, QE has distorted the gilts market.”

With debt set to be 100.6% of GDP at the end of this year, the relationship between growth and interest rates becomes key. If debt remains above 100% of GDP the economy is then in a precarious position – particularly if growth disappoints and if rates stay high because of inflation. In that scenario, the economy could slip into a debt trap, where the ratio of debt keeps rising. The UK is not in this situation yet, and should avoid it, but how this plays out with the relationship between nominal GDP and interest rates in coming years is key.

Perhaps this highlights why the Chancellor has chosen as one of his two fiscal rules the aim to have debt falling as a percent of GDP within five years. His other rule is to ensure the budget deficit does not exceed 3% of GDP. The UK has a track record of dropping its fiscal rules at the first sign of difficulty. It cannot afford to do so on the ratio of debt to GDP. This Budget meets both fiscal rules, with the budget deficit falling, but still leaves debt, tax and public spending at high levels.

It was once said that there are three things in life you can be sure of: death, taxes and financial crises. To that can be added a fourth: banking bailouts.