(Bloomberg) — Like they did after the 2008 crash, the U.K.’s two economic policy heavyweights are playing good cop-bad cop. It’s just that this time they’ve swapped roles.

The Bank of England remained steadfastly committed to easy money in the years after the financial crisis. However, fiscal policy became more difficult when George Osborne, Chancellor of Exchequer of England, imposed drastic budget cuts.

But as the economy grapples with the highest inflation level in three decades and the fallout from the war in Ukraine, it’s BOE Governor Andrew Bailey who’s playing the bogeyman. Global peers are following the example of central banks that will hike interest rates on Thursday for the third time in a row. They also expect to tighten monetary policy at a rapid pace.

Contrary to this, Treasury chief Rishi Sonak, for all of his talk about the need to reduce borrowing, is spending more billions to protect households against a rise in the price of daily goods and services.

Tellingly, as the conflict in Ukraine rages, it’s also the Chancellor, not the BOE, who is facing increasing calls to step in to support the economy further. 

The switch among the policy heavyweights may come into sharper focus this month, when the BOE’s rate decision is set to be followed within days by Sunak’s spring statement, a fiscal update akin to a mini-budget.

This is part of wider evaluation of the best ways fiscal and monetary policies can be used to help support economic growth in the U.K. 

“Having got through this thing, there’s a real need for ongoing fiscal support,” said David Owen of Saltmarsh Economics. “Fiscal policy should be used pretty proactively. To me, the combination of this and tightening of monetary policies makes complete sense. I’m really all for it — it puts the U.K. internationally in a good position.”

Simply put, the budget did more heavy lifting in the pandemic than the Great Recession. More cash was distributed by the governments. The economies bounced back quicker. The recovery was faster for policymakers, who now have to deal with inflation.

One of the largest Covid consumers was the U.K. UBS reported that only the U.S. matched its budget stimulus relative to their economies. Sunak’s measures to prop up incomes for workers and businesses cost a total of about 370 billion pounds ($484 billion), including loans. 

Full support was provided by the BOE, which slashed interest rates to almost zero and bought government debt in order to absorb additional borrowing. The 440 billion pounds of BOE bond buying between March 2020 and December 2021 was enough to offset about 94% of the increase in the U.K.’s net borrowing requirement over the period.

The government soon argued that the number one priority in the recovery of the economy after 2008 was to decrease the deficit and the debt. 

Osborne made use of the threat of debt crisis in Euro-area countries such as Spain or Greece to call for fiscal austerity. He also cited the evidence of his plan’s success in that British government debt had low interest rates.

However, economists tend to credit the monetary policies for this success in hindsight. This means that if U.K. borrowing cost remained low it was because of the BOE. That argument was only reinforced when intervention by the European Central Bank — Mario Draghi’s famous “whatever it takes” –- succeeded in bringing down bond yields in even the most fiscally challenged euro-members.

“I never understood George Osborne’s mantra of the need to get the deficit down at the time,” Owen said. “Covid has changed a lot of these things in this world we are currently in and I don’t see an issue with rolling out more targeted measures.”

Sunak, like Osborne’s Conservative Party predecessor, has been speaking out about how the public finances must be restructured as the pandemic is receding. He’s actually gone further than many finance ministers by raising taxes to pay for some of the pandemic spending.

This was accompanied by policy changes like providing financial assistance to households in order to help them cope with rising energy costs and authorizing spending increases for all government departments over the next three-years. Now, the Treasury is facing calls is turn the spending taps on further, to help firms cope with a historic surge in energy prices following Russia’s invasion of Ukraine.

Meanwhile, with inflation hitting an 30-year high of 5.5% — and forecast by some to hit 10% later this year as a result of the Ukraine crisis  — it’s been the central bank that hit the brakes early and hard. In fact, the BOE hiked rates twice before the U.S. Federal Reserve did. It also declared a decrease in its bond portfolio. 

At some point, the chancellor himself may feel the sting of the BOE’s newfound hawkishness. If central bank policies helped keep government borrowing costs down after 2008, then they’re having the opposite effect right now, as gilt yields rise in line with anticipated rate hikes.

Should the BOE benchmark hit 2% this year, as markets are predicting, then the cost of servicing bonds held under the BOE’s QE plan alone will jump hit 17 billion pounds a year, about double the level before officials hiked rates for the first time in December, according to calculations by Bloomberg. 

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