Jeremy Hunt has told Sky News he is comfortable with Britain going into recession if that is what it takes to bring inflation down.
The chancellor said he would fully support the Bank of England in raising interest rates, possibly towards 5.5%, as it struggled with higher-than-expected prices.
Asked by Sky News if he was “comfortable with the fact that the Bank of England was doing everything it could to bring down inflation, even if it might trigger a recession”, he said: “Yes, because ultimately it is inflation a source of instability.
“And if we want to have prosperity, to grow the economy, to reduce the risk of a recession, we have to support the Bank of England in the tough decisions they make.
“I have to do something else, which is to make sure that the decisions I make as chancellor, very difficult decisions, 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) the chancellor’s fiscal policy are aligned.”
The comments came after market expectations for the eventual spike in UK interest rates rose dramatically higher than expected CPI inflation data this week.
While the expected peak for UK interest rates was slightly above 4.75% last week, it rocketed to 5.5% following Wednesday’s statistics. Excluding the post-mini budget swings last fall, it was the biggest shift in interest rate expectations since 2008.
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Prime Minister Rishi Sunak promised in January that he would cut inflation in half this yearwhich in practice means it should be reduced to just over 5% by the end of 2023. Bank of England forecasts earlier this week suggested he would narrowly succeed.
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However, as the most recent inflation data is significantly higher than the Bank’s predicted trajectory, the commitment may be missed.
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But the prime minister also promised to grow the economy. And while the International Monetary Fund said so this week the UK would avoid a recessioneconomists believe it is now plausible, given those higher interest rate expectations, that Britain will instead see a two-quarter contraction in gross domestic product – the technical definition of a recession.
Hunt added: “When the Prime Minister announced that his target was to cut inflation in half in January, there were those who scoffed at that. They said, ‘Well, it will go without saying, inflation is going to come down anyway’.
“There is nothing automatic about reducing inflation, it is a big task, but we have to deliver and we will.
“It’s not a trade-off between tackling inflation and recession. Ultimately, the only way to sustainable growth is to reduce inflation.”
