UK Chancellor Hunt Backs Interest Rate Hikes to Tackle Inflation Despite Recession Risk

The UK chancellor to the exchequer Jeremy Hunt backed interest rates increases to calm rising inflation even if there is a risk of the UK getting pushed into a recession.

Speaking to UK-based media outlets Sky News and the Telegraph, Hunt insisted that high prices behind the cost of living crisis should be brought down to pave the way for sustainable growth.

According to the report by the Telegraph, market predictions in the UK suggest that the Bank of England may raise interest rates to as high as 5.5% this year, up from the current rate of 4.5%, in order to address inflation.

Inflation in April was 8.7%, still high despite a decrease from the previous 10.1%. Core inflation reached its highest level since 1992, along with a rapid increase in food prices.

Hunt told Sky News News that steps taken to slow rising prices must be prioritised even if rate hikes damage the UK’s gross domestic product (GDP).

Hunt said he is comfortable with the Bank of England taking steps to tame inflation even if it triggers a recession.

“In the end inflation is a source of instability. If we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take,” Hunt was quoted as saying by Sky News and the Telegraph.

He said that as chancellor to the exchequer he has to ensure that the decisions he takes, even the difficult ones, to “balance the books” must exhibit to “the markets, the world” that Britain is a country that “pays its way”. He said that all of these things will show that the “monetary policy of the Bank of England (and) fiscal policy by the Chancellor are aligned”.

UK Prime Minister Rishi Sunak pledged to halve inflation this year, earlier in January when the inflation rate was 10.1%.

Bank of England governor Andrew Bailey said there are chances that the Sunak-led government will meet the target despite rising prices.

“It is not a trade-off between tackling inflation and recession. In the end, the only path to sustainable growth is to bring down inflation,” Hunt was quoted as saying by Sky News News.

The International Monetary Fund (IMF) has raised its growth projection for the UK economy, predicting a slight expansion of 0.4%. This positive outlook suggests that the UK is expected to avoid a recession.