UK Chancellor of the Exchequer Jeremy Hunt says he’s in favor of higher interest rates to tackle inflation, even if it causes a recession.
(Bloomberg) — UK Chancellor of the Exchequer Jeremy Hunt says he’s in favor of higher interest rates to tackle inflation, even if it causes a recession.
When asked if he’s comfortable with the Bank of England potentially triggering a recession in its fight against stubbornly high inflation, Hunt told Sky News “Yes, because in the end the inflation is a source of instability.”
“If we want to have prosperity, grow the economy, reduce the risk of recession, we have to support the Bank of England in the difficult decisions they take,” Hunt said in the Sky interview broadcast Friday. “It’s not a trade-off between tackling inflation and recession, in the end the only path to sustainable growth is to bring down inflation.”
For now, the UK is holding up better than expected to the worst cost-of-living crisis in generations. Unemployment remains low, and retail sales and broader economic growth both surprised on the upside in the past few weeks. That marks a sharp contrast with Germany, which tumbled into recession.
Britain’s inflation rate also is falling at the fastest pace in three decades, though figures for April published earlier this week was still higher than the Bank of England had forecast.
Services and core prices increased at the fastest rate in more than three decades, fueling bets on further rate hikes. Higher rates will push up mortgage costs and may tip the UK into a downturn, but for now, neither the BOE nor the International Monetary Fund expect a recession.
Hunt told Sky that “there’s nothing automatic about bringing down inflation” and though it’s a “big task,” it will be delivered.
Prime Minister Rishi Sunak promised in January to cut inflation by half. Though inflation is coming down, the cost-of-living crisis remains persistent, with grocery prices jumping 19% and mobile phone bills climbing 7.9%.
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(Updates with economic context and charts.)
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