Jeremy Hunt warns high inflation will prevent pre-election tax cuts
Introduction
Jeremy Hunt, the chancellor of Britain, has warned that the high pace of inflation in the country will prevent pre-election tax cuts this autumn. This comes amid signals from the Bank of England that another rate rise to ease cost of living pressures is coming next week.
Hunt’s Concerns
- Hunt is wary of putting money into the pockets of consumers in his November package
- He believes it would overstimulate the economy and make it more difficult to bring inflation down
- Hunt states that pumping extra money into the economy can push up prices and keep inflation higher for longer
- Money will be tight due to higher inflation and rising interest rates impacting the government’s debt interest payments
Bank of England’s Perspective
Catherine Mann, a member of the Bank’s rate-setting monetary policy committee, has expressed her willingness to raise interest rates too far to prevent inflation from becoming embedded. She believes it is better to tighten too much than risk allowing inflation to persist.
Mann’s Speech
- Mann plans to vote for the Bank to raise interest rates for a 15th successive time
- Financial markets are expecting a quarter-point increase to 5.5%
- Mann believes pausing or holding the policy rate lower for longer risks deeper embedded inflation
- She prefers to err on the side of overtightening to bring inflation back to the official 2% target
Bank’s Responsibility
Mann emphasizes the need for the Bank to send a clear message that it will do whatever necessary to bring the annual inflation rate back to its target sooner rather than later. She believes underestimating the rise in persistent inflation could contribute to an overshoot of the target.
Conclusion
Jeremy Hunt’s warning about high inflation preventing pre-election tax cuts aligns with the Bank of England’s signals of another rate rise. Catherine Mann’s willingness to tighten interest rates too much reflects the Bank’s commitment to bringing inflation back to its target.
