Essentially, the shock to the economy that is driving inflation has not been stronger-than-expected output or demand, but rather a shortfall in the economy's supply-side production, which means the bar for excess demand to overheat the economy is much lower.
"If you think about this previous output path, the MPC and the OBR think that potential output is lower than 2019 Q4, but … over three years at the pre-pandemic pace, you'd expect potential output growth of probably 4.5%, something like 1.5% per year, so it's that shortfall relative to what in any case was a pretty miserable trend," Saunders said.
"I thought the Autumn Statement just had a massive big hole where a long-term growth strategy should have been," Saunders told CNBC via telephone. An OECD report in 2016 found that public investment "has a positive effect on long-term growth and on labour productivity" and can also "increase the speed of convergence of catching-up countries."
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