Jeremy Hunt told Sky News he was comfortable with Britain slipping into recession if that is what it takes to bring down inflation.
The chancellor said he would fully support the Bank of England raising interest rates higher, potentially as high as 5.5%, as it battled higher-than-expected rates.
Asked by Sky News if he was “comfortable with the Bank of England doing whatever it takes to bring down inflation, even if that could potentially lead to a recession,” he said: “Yes, because in the end, inflation is the source of instability.”
“And if we want to achieve prosperity, grow the economy and reduce the risk of recession, we have to support the Bank of England in the difficult decisions they make.
“I have to do something else, which is to make sure the decisions that I make as an advisor, very difficult decisions, to balance the books so that the markets, the world can see that Britain is the country that pays for it – all these things mean that monetary policy in the Bank of England (and) politics Finance by the Minister of Finance are compatible.
The comments came after market expectations for the eventual peak in UK interest rates jumped significantly, in the aftermath CPI inflation data is higher than expected this week.
While the expected peak of rates in the UK was slightly above 4.75% last week, they eased higher, to 5.5%, following Wednesday’s stats. Excluding volatility that followed last fall’s mini budget, this was the biggest shift in interest rate expectations since 2008.
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Prime Minister Rishi Sunak He pledged in January to cut inflation in half this yearwhich in practice would mean bringing it down to just over 5% by the end of 2023. The Bank of England’s forecast earlier this week indicated that it would succeed by a narrow margin.
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However, since recent inflation data is much higher than the bank’s forecast path, the pledge could be missed.
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But the prime minister also pledged to grow the economy. And while the International Monetary Fund said this week that The UK will avoid recessionEconomists think it is now reasonable, given those higher interest rate expectations, to see Britain instead hold a two-quarter GDP contract – the technical definition of a recession.
Hunt added: “When the prime minister announced his aim was to halve inflation in January, there were some people who laughed at that and said, ‘Well, it’s automatic, inflation is going to go down anyway.'”
“There is nothing automatic about lowering inflation, it is a big job, but we must and we will achieve it.
“It’s not a trade-off between tackling inflation and recession. In the end, the only path to sustainable growth is lower inflation.”