Chancellor Jeremy Hunt said he is “comfortable” with the UK falling into a recession, if that’s what is needed to tackle elevated inflation, according to Sky News.
“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 told Sky News. As chancellor, Hunt said he has to make “difficult decisions” to balance the UK’s books, “so that the markets, the world can see that Britain is a country that pays its way”. “All these things mean that monetary policy at the Bank of England (and) fiscal policy by the chancellor are aligned,” Hunt added.
And the Bank of England cannot rule out more interest rate increases, a member of its decision-making body said on Thursday.
Jonathan Haskel told an audience in Washington DC that inflation could be worse, but that the Bank might be forced to increase interest rates again in order to bring it back to its 2% target.
“As difficult as our current circumstances are, embedded inflation would be worse,” Haskel said a day after Consumer Prices Index inflation was revealed to have hit 8.7% in April.
But he added: “The fact of the matter is that inflation in Britain is too high … these numbers are just too large.”
April’s inflation figures were a drop from the month before, but still far ahead of what analysts had expected. Following the announcement, markets started to expect interest rates to go higher than they previously had thought.
The Bank’s Monetary Policy Committee, on which Haskel sits, has raised rates 12 times in a row to 4.5% from 0.1% in December 2021.
“The MPC remains committed to bringing inflation sustainably back to the 2% target, and that is what we will do. But to do this, further increases in Bank rate cannot be ruled out,” he said in a speech at the Peterson Institute for International Economics.
He suggested that there have been no comparable periods in recent history to understand the path for inflation.
The last time inflation levels were this high was in the 1970s and 1980s, but “a lot has changed in the structure of the economy since then”, he said.
Haskel added: “The period since the Bank of England’s independence in 1997 has not seen a series of shocks like this before.”
He added that there was not much evidence to show that inflation was being largely impacted by firms raising prices.
“My reading of official UK inflation data is that the contribution of rising business profits to recent inflation is small,” Haskel said.
In other economic news on Friday …
UK retail sales edged up on a monthly basis in April, while an annual decline softened, according to the Office for National Statistics on Friday.
The ONS estimated that retail sales volumes in April rose 0.5% from the previous month, after a downwardly revised fall of 1.2% in March. The reading was slightly higher than FXStreet-cited market consensus of 0.3%. March was initially reported to have seen a 0.9% fall in retail sales.
“Total non-food stores sales volumes (the total of department, clothing, household and other non-food stores) rose by 1.0% over the month,” ONS said.
“Sales volumes partially recovered from a fall of 1.8% in March 2023 when feedback from retailers suggested that poor weather conditions affected sales.”
Food stores sales volumes rose 0.7% during the month but remained 2.7% behind their pre-Covid February 2020 levels.
On an annual basis, retail sales volumes fell 3.0% in April, compared to a downwardly revised fall of 3.9% in March. Market consensus had expected a 2.8% fall in April, while March was initially reported as a 3.1% decline.
Excluding fuel, retail sales volumes rose 0.8% month-on-month in April, compared to a 1.4% fall in March. Annually, they fell 2.6%, slowing from a 4.0% the month before.
