© Reuters. FILE PHOTO: British Chancellor of the Exchequer Jeremy Hunt speaks during the press conference on the day he signs cooperation pact on financial services with European Commissioner for Financial Stability, Financial Services and the Capital Markets Union
By David Milliken
LONDON (Reuters) – Britain’s government and the Bank of England “will do what is necessary, for as long as necessary” to return inflation to its 2% target, finance minister Jeremy Hunt said on Monday, adding to signs that interest rates will stay high for some time.
“Delivering sound money is our number one focus,” Hunt told finance executives at the City of London’s annual Mansion House dinner, in a speech alongside BoE Governor Andrew Bailey, who said he would “see the job through” on bringing down inflation.
British inflation hit a 41-year high of 11.1% in October and has been slower to fall than in other big economies. Last month the BoE unexpectedly raised its key interest rate by half a percentage point to 5%, after inflation held at 8.7% in May.
Since then, Bailey has suggested that the BoE may have to hold rates at their peak for some time, although he has given little indication of how high that will be. Markets see rates reaching 6.25% or 6.5% late this year or early in 2024.
Prime Minister Rishi Sunak promised in January to halve inflation this year, a goal which now looks 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 added that businesses should show restraint on profit margins, saying “margin recovery benefits no one if it feeds inflation”.
Hunt reiterated that the fight against inflation would have to take priority over the tax cuts which many lawmakers in his Conservative Party want to boost their ailing political fortunes ahead of a national election expected next year.
Public-sector workers are also likely to be disappointed by pay rises the government is due to announce later this month.
Reducing inflation “means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary”, Hunt said, sticking close to previous statements.
Trade unions dispute how inflationary public-sector pay rises would be, as higher costs for public services do not feed directly into consumer price inflation, and the government has the option of raising taxes to fund them.
