Hunt backs more rate hikes despite risk of recession 

British chancellor of the exchequer Jeremy Hunt said he supported the Bank of England in its quest to bring down inflation

British chancellor of the exchequer Jeremy Hunt said reducing inflation the 'only path' to sustainable growth. 

The British chancellor of the exchequer Jeremy Hunt has backed continuing interest rate hikes to tackle inflation even if it causes a recession.

Earlier this month, the Bank of England raised interest rates by 0.25% to 4.5%, with its governor Andrew Bailey suggesting rate hikes would continue. The bank is fighting double-digit price increases that remains stronger than the forces buffeting the eurozone and the US.

The European Central Bank (ECB) has raised interest rates by 3.75% since July last year, and like the Bank of England, more increases are expected over the coming months. The ECB is due to meet again next month, when another 0.25% increase is expected.

When asked if he was comfortable with these rate hikes potentially triggering a recession, Mr Hunt told Sky News “yes”, because “inflation is a source of instability.” 

“If we want to have prosperity, grow the economy, reduce the risk of recession, we have to support the Bank of England in the difficult decisions they take,” Mr Hunt said on Friday.

It’s not a trade-off between tackling inflation and recession, in the end the only path to sustainable growth is to bring down inflation.” 

For now, the UK is holding up better than expected during the worst cost-of-living crisis in generations. Unemployment remains low, and retail sales and broader economic growth both surprised on the upside in the past few weeks.

That marks a sharp contrast with Germany, which tumbled into recession. Britain’s inflation rate also is falling at the fastest pace in three decades, though figures for April published earlier this week was still higher than the Bank of England had forecast.

Services and core prices increased at the fastest rate in more than three decades, fuelling bets on further rate hikes. 

Higher rates will push up mortgage costs and may tip the UK into a downturn, but for now, neither the BoE nor the International Monetary Fund expect a recession.

Mr Hunt added “there’s nothing automatic about bringing down inflation” and though it’s a “big task”, it will be delivered.

Mr Hunt’s comments come on the back of figures that show retail sales increased unexpectedly in April, resulting in gains in UK stocks.

UK retail sales volumes rose 0.5% during the month after a 1.2% fall in March, figures from the Office for National Statistics show.

Sales volumes at supermarkets and other foods stores rose by 0.7% during April following a drop of 0.8% in March. Sales volumes in non-food stores rose 1% month-to-month following a fall of 1.8% when poor weather conditions throughout most of March affected sales.

Despite falling fuel prices, petrol and diesel sales volumes fell by 2.2% in April.

When compared with their pre-covid levels in February 2020, total retail sales were 16.5% higher in value terms, but volumes were 0.8% lower.

• Bloomberg