Jeremy Hunt insisted that Treasury and Bank of England policies should be harmonized to maintain confidence in British finance
Jeremy Hunt said, that he is comfortable with the UK falling into recession, if necessary to fight inflation, days after the IMF said Britain would avoid a recession.
The chancellor said he would back the Bank England in raising interest rates further, as he insisted that «the only way to sustainable growth» is to reduce the high prices caused by the cost-of-living crisis.
The bank is raising interest rates to cope with inflation, but markets are predicting they could rise to 5.5 percent this year from the current 4.5%.
Despite a decline from 10.1%, inflation remains unchanged high at 8.7%, with core inflation at its highest level since 1992 and food remaining alarmingly expensive.
UK inflation 2605
Mr Hunt told Sky News that the priority of slowing down prices was necessary, even if the rate hike hurt the UK's gross domestic product, or GDP, a measure of the size of the economy.
When asked if he was happy with the move Bank to reduce inflation, even if it could trigger a recession, Mr Hunt replied: “Yes, because inflation is ultimately a source of instability. If we want to prosper, grow the economy, reduce the risk of a recession, we must support the Bank of England in making difficult decisions.”
He added: “I have to do something else, which is to make sure that the decisions that I make as chancellor are very difficult decisions, to balance the books so that the markets, the world, can see that the UK is a country that pays for its . – all this means that the monetary policy of the Bank of England (and) the fiscal policy of the Chancellor are in agreement.”
Mr Hunt's comments were echoed by former Chancellor Lord Norman Lamont.
Speaking to Sky News, Lord Lamont said: «I think Jeremy Hunt should be applauded — not criticized, applauded — for holding a position that is in the national interest in the long run.»
A conservative colleague accused the Bank of England of spurring domestic inflation because of its response to the pandemic.
Lord Lamont said: “I warned a while back that I thought interest rates were too low. I think many people, looking back, would say that this was the right thing to do and that the Bank of England raised interest rates rather slowly.
“They overreacted to Covid, cut interest rates too much and did quantitative easing… this is an injection of money into the economy – on a too large scale and for too long.”
This is because Rishi Sunak has reportedly made inflation his «top» priority ahead of a potential general election in the next two years.
Earlier this week, Lord Robert Hayward said the prime minister would delay the next general election until October 2024 to allow time for inflation to come down.
people who just faced rising mortgage rates who didn't come out and vote Conservative as they previously promised,» said Lord Hayward.
«These interest rates have to come down,» he added.
The prime minister has pledged to halve inflation this year, making the pledge in January when the rate was 10.1 percent.
Bank Governor Andrew Bailey said the government still has a chance to meet the pledge despite that prices continue to rise.
The International Monetary Fund also raised its growth forecast for the UK economy, supporting it to avoid a recession and grow slightly by 0.4%.
Projected growth in 2023 (forecast for May)
Mr Hunt told Sky: «This is not a compromise between fighting inflation and a recession.
“At the end of the day, the only way to sustainable growth is to bring inflation down.”
Mr Hunt's comments came after Jonathan Haskell, an outside member of the Bank of England's Monetary Policy Committee, strongly hinted that that a further increase in interest rates is necessary to control inflation.
Speaking in Washington on Thursday, Mr. Haskell said: «A further increase in the bank rate cannot be ruled out.»
«Inflation may persist far beyond a terms-of-trade shock if labor and capital income dynamics are built in,” Mr. Haskell warned.< /p>
Early signs of a weakening labor market are not enough to dissipate this risk, he added. “I think it's still very tough in an absolute sense,” Mr. Haskell said. Job-to-unemployment ratios and unit wage growth are historically high.
The combination of high core inflation and sluggish economic activity also points to a worsening supply side of the economy, he added.
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