UK Finance Minister Jeremy Hunt spoke with Bank of England (BoE) Governor Andrew Bailey, emphasizing his willingness to take steps to achieve the 2% inflation target.
The policymaker told finance executives at the City of London’s annual Mansion House dinner that “working with the Governor and the Bank of England, we will do what is necessary for as long as it takes to tackle inflation persistence and bring it back to the 2% target.”
Hunt told finance leaders at the City of London’s annual Mansion House dinner, in a speech alongside BoE Governor Andrew Bailey, who vowed he will “see the job through” on lowering inflation.
Inflation in the United Kingdom reached a 41-year high of 11.1% in October and has been slower to recede than in other major economies. After inflation remained at 8.7% in May, the Bank of England unexpectedly boosted its key interest rate by half a percentage point to 5% last month.
Since then, Bailey has warned that the Bank of England may need to keep interest rates at their highest for some time, though he has provided no indication of how high that will be. Rates are expected to reach 6.25% or 6.5% late this year or early in 2024, according to market expectations.
Prime Minister Rishi Sunak pledged in January to cut inflation in half this year, a target that now appears challenging.
“Working with the Governor and the Bank of England, we will do what is necessary for as long as necessary to tackle inflation persistence and bring it back to the 2% target,” Hunt said at the start of a speech which focused largely on changes to Britain’s pension sector.
The finance minister also stated that enterprises should exercise caution when it comes to profit margins, stating that “margin recovery benefits no one if it feeds inflation.”
However, Hunt maintained that the fight against inflation must take precedence over tax cuts, which many legislators in his Conservative Party seek to revive their ailing political fortunes ahead of a national election next year.
Employees in the public sector are likewise likely to be disappointed by salary increases announced by the government later this month.
Reducing inflation “means making responsible decisions about public finances, including public sector pay, because more borrowing is inflationary,” Hunt added, echoing prior warnings.
Trade unions argue that higher public-sector pay increases would be inflationary because increasing expenditures for public services do not directly feed into consumer price inflation, and the government has the option of boosting taxes to fund them.
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