UK’s Finance Minister Jeremy Hunt delivered a resolute message at the City of London’s annual Mansion House dinner, affirming that the government and the Bank of England (BoE) will do whatever it takes to bring inflation back to its target of 2%. Speaking alongside BoE Governor Andrew Bailey, Hunt emphasized their commitment to delivering sound money and tackling inflation persistence.
In recent months, British inflation soared to a 41-year high of 11.1% in October, demonstrating a slower decline compared to other major economies. To address this, the BoE unexpectedly raised its key interest rate by 0.5% to 5% in June, aiming to combat inflationary pressures. Bailey hinted that rates might remain elevated for an extended period, but specific figures remain uncertain. Market expectations suggest rates could climb to 6.25% or even 6.5% by late 2023 or early 2024.
Despite Prime Minister Rishi Sunak’s pledge to halve inflation this year, achieving this target now seems challenging. However, Hunt reassured the public that the government, in collaboration with the BoE, is fully committed to taking the necessary steps to rein in inflation and restore stability. The finance minister emphasized the need for businesses to exercise restraint on profit margins, noting that unchecked margin recovery only fuels inflationary pressures.
Hunt’s dedication to combatting inflation takes precedence over tax cuts, which some Conservative Party lawmakers advocate to boost their popularity ahead of an anticipated national election in the coming year. With public-sector workers eagerly awaiting pay rise announcements later this month, Hunt indicated that reducing inflation requires responsible decision-making on public finances, including public-sector pay. He highlighted that increased borrowing could contribute to inflation, urging caution and emphasizing the importance of prudent fiscal measures.
Trade unions hold differing views on the inflationary impact of public-sector pay rises. While higher costs for public services do not directly feed into consumer price inflation, the government still has the option to raise taxes as a means to fund these raises. The dispute raises questions about the most effective course of action in balancing public sector pay demands with the need to tackle inflationary pressures effectively.
