NEWPORT, WALES – British Finance Minister Jeremy Hunt attends the 2023 Welsh Conservative Party Spring Conference on April 28, 2023 in Newport, Wales.
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LONDON — UK Finance Minister Jeremy Hunt has signaled that inflation within the country remains too high, a day after the Bank of England agreed to a twelfth consecutive increase in rates of interest to combat stubbornly high household prices.
“I feel we realize we still have an extended strategy to go. We still have too much inflation, growth continues to be not as high as we would really like,” he told CNBC’s Martin Soong on Friday, hours after the most recent official figures showed the UK economy had grown by 0.1% in the primary quarter.
“I feel Britain is back and these are numbers that nobody would have predicted even three months ago. These are much higher growth projections,” he noted of the first-quarter print, nevertheless signaling continuing concerns about labor supply, productivity indicators and the right way to boost long-term growth.
He defended that the UK’s economic performance was affected by macroeconomic concerns, citing “a once-in-a-century pandemic and an energy price shock that is arguably the most important for the reason that Seventies”.
The Covid-19 pandemic has led to severe global logistical and manufacturing bottlenecks, and sanctions following Russia’s full-scale invasion of Ukraine last February have deprived western consumers of Moscow’s fuel supplies.
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Hunt underlined his support for Thursday’s decision by the Bank of England to lift rates of interest by one other 25 basis points despite recent GDP figures, arguing that the measure countered “fundamental instability” brought on by high inflation.
The successive spring failures of several international banks, including the European Credit Suisse, put into query whether central banks will begin to ease their policy of rapidly raising rates of interest.
“I feel all of us consider, and we actually consider within the UK, that a very powerful thing we want to do is give attention to bringing inflation down,” Hunt said. “Once inflation comes down and also you get stability, you may start accelerating growth.”
As of Thursday, the Bank of England’s Monetary Policy Committee not expects the UK to enter recession this yr, with Governor Andrew Bailey defending that his “biggest update” of the forecast reflects the volatile economic landscape.
The central bank’s forecast marks an optimistic improvement over the image painted by the International Monetary Fund, which in late January predicted the UK could be the one “advanced economy” to contract in 2023, with an economic outlook worse than that of sanctions-hit Russia.
“I feel a variety of people expected the UK economy to contract, as a substitute it grew, just just a little bit, it grew over the quarter. I believed then and I think now that the UK will probably be resilient this yr,” Hunt said on Friday. “The larger picture is one that is encouraging for Britain”
Domestic affairs
High inflation has loomed on the horizon and has eased barely within the UK’s economic outlook as waves of employees from the transport, health and education sectors have taken to the streets demanding wage increases to fulfill rising household spending in recent months.
Hunt said negotiations to finish the strikes were ongoing, but he shrugged off wage increases as a cure-all.
“The one thing we cannot do, as you say, is comply with pay bounties that fuel inflation, because then we’ll only make things worse. And that made it a really difficult period for labor relations,” he said.
Questions remain in regards to the extent to which UK consumers have experienced the complete extent of inflationary pressures, particularly within the housing sector. Hunt said Britain’s mortgage model – where buyers enter fixed-rate repayment plans, normally for 3 to 5 years – has partially saved the economy from further bruising and prevented house prices and mortgage rates from falling even further.
“Due to fixed-rate mortgages, there’s a time lag,” he said. “But there will probably be an effect because every month a certain number of individuals should renew their fixed-rate mortgages, which has a dampening effect on demand.”
In its April house price indexMortgage lender Halifax said UK house prices rose just 0.1% on an annualized basis last month, slowing from 1.6% in March and 10.9% in April 2022.
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