Jeremy Hunt said he would back further interest rate rises by the Bank of England, even if they risk plunging the UK into recession, in order to combat soaring inflation.
The chancellor’s comments come after figures this week showed annual inflation in April was higher than expected at 8.7%, raising the prospect of a 13th interest rate rise by the Bank of England. Markets are predicting that interest rates could climb to 5.5% by the end of the year, up from their current level of 4.5%, putting further pressure on borrowers and the housing market.
When asked whether he was comfortable with the central bank doing whatever was needed to bring down inflation, even if that could cause a recession, Jeremy Hunt told Sky News: “Yes, because in the end, inflation is a source of instability. And if we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.”
The chancellor said that while it was not an easy decision, it sent the right message to global markets. “I have to do something else, which is to make sure the decisions that I take as chancellor, very difficult decisions, to balance the books so that the markets, the world can see that Britain is a country that pays its way – all these things mean that monetary policy at the Bank of England [and] fiscal policy by the chancellor are aligned,” he said.
Earlier this week, the International Monetary Fund said it no longer expected the UK to fall into recession this year, after observing the greater “resilience” of households and businesses during the worst of the inflation shock. It also predicted that inflation would fall back to 5% by the end of the year and below the Bank of England’s 2% target by the summer of 2024, mainly in response to falling energy prices.
Hunt said inflation would not drop without determination and coordination by the Bank of England and Treasury.
“When the prime minister announced that it was his objective to halve inflation in January, there were some people who derided that; they said: ‘Well, it’s automatic; inflation is going to come down anyhow.’ There’s nothing automatic about bringing down inflation; it is a big task but we must deliver it, and we will. It is not a trade-off between tackling inflation and recession. In the end, the only path to sustainable growth is to bring down inflation,” he said.
