YOU don't expect the Old Lady of Threadneedle Street to engage in dodgy media manipulation, but the Bank of England Governor, Andrew Bailey, pulled a blinder last week. He delivered the most damaging announcement made by a British central banker in 25 years – that inflation is going to hit 10 per cent this winter – on the eve of the local elections. That effectively buried it.

But it won't stay buried for long.

The Queen's Speech yesterday was inevitably dominated by the cost of living crisis. Yet Boris Johnson's beleaguered Government had little to offer apart from pious promises about levelling up and growth, plus the vaguest hints about future tax cuts. They know what's coming. They’re keeping in reserve financial measures to deal with price rises in the autumn Budget. But they will be blown away by hurricane inflation.

Britain is facing a crisis comparable to the 1970s. Every £10 note in your pocket will be worth only £9 by early 2023. The Bank also announced a rise in interest rates to one per cent; it starts ratcheting up lending costs this winter. That means mortgage costs rising too. According to Paul Johnson of the Institute for Fiscal Studies, a one per cent increase in interest rates doubles mortgage payments after people come off fixed rates.

Mr Bailey went on to forecast the biggest squeeze on incomes since the 1970s. Oh, and there'll almost certainly be a recession. The Governor had earlier called on workers not to ask for big pay increases which might fuel yet more inflation. Supermarket stackers and hospital workers will no doubt be only too glad to pay for his incompetence.

Read more: How the cost of living crisis turned levelling up upside down

The Winter of Discontent 2.0 will kick off with another 40% hike in energy payments this autumn, just as we're getting used to the current one. According to Scottish Power boss Keith Anderson, average bills will rise to a staggering £3,000 a year, enough to put every family living on average wages into fuel poverty.

Mr Anderson wants the Government to step in with a £10 billion rescue package, but that is optimistic given the state of the UK finances. Mr Johnson didn't announce it, but a windfall tax on the energy companies is now inevitable. BP cannot rack up record profits while millions are freezing. If the fossil fuel companies have any sense they’ll try to forestall the windfall by offering their own concessions to retailers like Scottish Power.

Tory backbenchers calling for tax cuts are whistling in the wind. And forget Partygate: this is an economic storm that will likely turf Mr Johnson out of No 10. No government can survive reductions to living standards on this scale.

Nor indeed, will it enhance the prospects for an independence referendum next year. Indeed, Mr Bailey may have cancelled Indyref 2.

Nicola Sturgeon will, as ever, blame the crisis on Westminster mismanagement. But independence is going to be a very hard sell next year. Setting up a new currency, ending fiscal transfers from the UK and erecting a hard border against Scotland's biggest trading partner will seem like Brexit on steroids. The Scottish economy is in no fit state for such an upheaval in the midst of an inflationary debt crisis.

During the pandemic the UK Government spent like there was no tomorrow. Rishi Sunak financed the furlough and other packages by borrowing more than £300 billion – more than at any time since the Second World War. Britain's debt pile topped £2 trillion, which was manageable when interest rates were low, but will become crippling now inflation and interest rates are rising.

Those who thought the pandemic showed that governments can borrow and spend without limit – like followers of Modern Monetary Theory – are about to have a sobering reminder that they can't. The Government is already spending more on debt repayment than on defence.

Mr Johnson has promised he will not return to austerity – the public spending cuts that followed the financial crash in 2008-9. But Mr Sunak will have no choice but to constrain spending as UK debt rises and tax revenues dwindle. Public services will suffer and jobs will be lost just as inflation peaks.

The Bank of England says it has no responsibility for taxes and spending, which is true. But it cannot evade its irresponsibility over inflation. It was quantitative easing coupled with near-zero interest rates that destroyed the Bank's credibility.

Did they not realise that printing nearly one billion of funny money through QE was going to have a long-term impact? Did they think they could keep interest rates at their lowest level since the 18th century indefinitely? History will be astonished that the institution whose sole task is to keep inflation to two per cent allowed it to get so disastrously out of control.

Read more: SNP is heading for a train wreck if it perseveres with Indyref2

Historically, UK interest rates have averaged over four per cent. During periods of past inflation, the late 1970s or the early 1990s, interest rates invariably rose to double figures. They topped out at 15% during the ERM crisis in 1992. Nothing like that is forecast now, but there is no doubt that interest rates will have to rise – fast.

Mr Bailey's statement will go down in history as the moment Britain finally realised it had been living in a post-pandemic fool's paradise. It will mark a return to an era when the country was run ragged by economic disruption as workers tried to keep pace with inflation and the middle classes lost their savings and their lifestyle.

Ominously, the 1970s also began with a war and a quadrupling of oil prices: the Israel-Arab war of Yom Kippur. History may appear to be repeating itself, and in some ways it is. However, the industrial trade unions of today are a shadow of their former selves. The Bank is hoping that workers will not respond to the cost of living crisis by a return to the mass strikes and industrial chaos of the 1970s.

That may be true. The response will be different this time. But when people finally realise what is happening to their living standards there will be fury. It'll make the 1979 Winter of Discontent look like a Summer of Love.

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