Jeremy Hunt, UK chancellor, stated that the Bank of England should continue to focus on taming “dangerously” high inflation, despite the pressure placed on the global banking system by rising interest rates.
On Wednesday, data will be released that is expected to show UK inflation close to 10%. Hunt said on Tuesday that he had instructed Andrew Bailey, BoE governor to do “whatever is necessary” in order to lower prices.
Hunt answered the House of Lords’ economic affairs committee when Hunt was asked if fighting inflation is still a priority in a time of increased banking stress and higher interest rates. Hunt said: “Yes, it is. Hunt stated that the prime minister’s number one priority is to reduce inflation by half.
Investors believe that the US Federal Reserve will limit its ability to raise interest rate by limiting the fragility of the banking sector. However, Hunt took a hawkish stand in evidence to the cross party group of peers.
He confirmed with Bailey that he had discussed the potential impact of higher interest rates in the banking sector, but stated that it was crucial to control inflation, which he called “dangerously high”. He stated that “we need to do all we can to keep our focus on bringing this down.”
Hunt added, “I never said to him anything other than “Please do what is necessary” as that is what the Bank of England Act requires.Hunt acknowledged that the rapid rise in interest rates was the root cause of volatility in recent months and stated that it was crucial to combat inflation in a way that preserves financial market stability.
He added that inflation is destabilizing in itself. It is not acceptable to accept a rate of inflation as high as 10%.
Just 24 hours after the most recent data on inflation, the BoE’s Monetary Policy Committee (BoE) will set interest rates Thursday. Economists agree that it could be below 10 percent.
As a result of last year’s increase in energy costs, big falls in inflation will be expected in the coming months. Hunt stated that core inflation, which is driven by non-energy factors like pay rises, was about 6.5 percent of the inflation figure.
Former Treasury permanent secretary Lord Macpherson said that the BoE should be relentless in reducing inflation. “The BoE cannot subordinate its monetary goals to financial stability.” “Inflation will continue to rise for longer if interest rates are not kept low.”
Hunt, however, defended the City of London’s proposed regulatory reforms and promised that he would not undermine financial stability. He stated, “We won’t undo the lessons from the financial crisis.”
The chancellor also supported the Swiss government’s handling the $3.2bn rescue-takeover Credit Suisse by UBS. This took out $17bn from its bonds and upended the “hierarchy” of claims for investors.
Hunt stated that compromise was necessary to close the sale. This represented “the best outcome.”
“I fully support the Swiss authorities’ decisions that made it possible for UBS to purchase UBS. He stated that he believed they made the right decision given the circumstances.
Hunt stated that he was assured by the BoE the UK’s banking system is “immensely strong” after the 2008 crash. However, he cautioned that “we have to be vigilant.”