Britain’s Treasury chief is prepared for the UK economy to slip into recession if it means reducing inflation

Britain’s Treasury chief is prepared for the UK economy to slip into recession if it means reducing inflation
  • The higher-than-expected inflation numbers coming out this week could mean the Bank of England will potentially raise rates.
  • Jeremy Hunt, head of Britain’s Treasury, said he was prepared to raise interest rates further, even at the risk of pushing the UK into a recession, if that means lowering inflation.
  • Over the past 18 months, the Bank of England has aggressively raised interest rates to 4.5%, the highest in 15 years.

Britain’s Treasury chief said he would be prepared to see the UK economy slide back into recession if further interest rate hikes were needed to bring down inflation.

With the Bank of England expected to continue raising rates after higher-than-expected inflation numbers this week, Jeremy Hunt said it was necessary to prioritize measures to slow the pace of rising prices.

In an interview with Sky News aired on Friday, Hunt said the “only path to sustainable growth” is to control inflation.

Asked if he was comfortable with further rate hikes, even if it could precipitate a recession, Hunt said: “Yes, because, in the end, inflation is a source of instability… .”

Like other central banks, the Bank of England has been raising interest rates aggressively over the past 18 months to a 15-year high of 4.5% after inflation spiked sharply, first because of bottlenecks caused by the pandemic. of the coronavirus and then the Russian invasion of Ukraine, which sent energy and food prices soaring.


Higher borrowing costs aim to make it more expensive for individuals and businesses to borrow, which reduces demand in the economy.

“If we want to have prosperity, make the economy grow, reduce the risk of recession, we have to support the Bank of England in the difficult decisions they make,” Hunt said.

Britain’s Chancellor of the Exchequer, Jeremy Hunt, leaves 10 Downing Street in London, on January 18, 2023. Hunt says he is prepared for the British economy to slip into a recession if that means reducing inflation. (AP photo/Frank Augstein, archive)

There was hope that the bank, whose main job is to keep inflation at around 2%, might stop rate hikes, but this week’s inflation figures sounded the alarm that it will have to keep tightening monetary policy.

UK hits record 7 million citizens on waiting list for ‘routine’ health care under state system

The consumer price index fell to 8.7% in the year to April from 10.1% in March, mainly as last year’s energy spike after the invasion of Ukraine dropped out of year-on-year comparison.

The drop was not as big as expected, especially as prices in the wholesale gas market have been falling for months.

Financial markets have since priced in further central bank rate hikes in the coming months, possibly as high as 5.5%, bad news for borrowers and those looking to get a new mortgage.


“The impression of an inflation shock this week has very quickly reset most analysts’ expectations of where the Bank of England rate peak will be,” said Luke Hickmore, chief investment officer at asset management firm abrdn.

Earlier this week, the International Monetary Fund predicted that the British economy would avoid falling into recession this year. However, its updated growth forecasts were released ahead of the inflation numbers, which led to the anticipated increase in interest rates.


Leave a Reply

Your email address will not be published. Required fields are marked *