LONDON (AP) — Britain’s Treasury chief says he would be willing to see Britain’s economy slip back into recession if further interest rate hikes are necessary to curb inflation.
With the Bank of England expected to keep raising rates following higher-than-expected inflation figures this week, Jeremy Hunt said it was necessary to prioritize measures to slow the pace of price rises.
In an interview with Sky News broadcast on Friday, Hunt said “the only way to sustainable growth” is to get inflation under control.
Asked if he was comfortable with raising interest rates further even if it could trigger a recession, Hunt said: “Yes, because ultimately inflation is a source of instability.” … It’s not a trade-off between fighting inflation and fighting recession.”
Like other central banks, the Bank of England has aggressively raised interest rates over the past 18 months to a 15-year high of 4.5% after inflation spiked, first due to bottlenecks caused by the coronavirus pandemic and then Russia’s invasion of Ukraine , which caused a spike in energy and food prices.
Higher borrowing costs are intended to make it more expensive for individuals and businesses to borrow, which reduces demand in the economy.
“If we want to have prosperity, to grow the economy, to reduce the risk of recession, we need to support the Bank of England in the tough decisions they make,” Hunt said.
There had been hope that the bank, whose primary task is to keep inflation at around 2%, might hold off on raising interest rates, but inflation data this week raised alarm that it will have to continue tightening monetary policy.
The consumer price index fell to 8.7% in the year to April from 10.1% in March, largely because last year’s energy spike following the invasion of Ukraine fell out of the annual comparison.
The drop was not as big as expected, especially since prices in the wholesale gas market have been falling for months.
Since then, financial markets have pushed central bank interest rates up further in the coming months, possibly up to 5.5%, which is bad news for borrowers and those looking to get a new mortgage.
“The shock inflation print this week has very quickly reset most forecasters’ expectations of where the Bank of England rate will peak,” said Luke Hickmore, chief investment officer at asset management firm abrdn.
Earlier this week, the International Monetary Fund predicted that the UK economy would avoid falling into recession this year. However, its improved growth forecasts were released ahead of the inflation figures, sending expected interest rates up.
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