Whitehall Pledges Support for Bank of England Ahead of Interest Rate Review

Chancellor of the Exchequer Jeremy Hunt speaking during the British Chambers Commerce Annual Global conference, at the QEII Centre, London, on May 17, 2023. Jordan Pettitt/PA Media

The government has pledged support for the Bank of England (BoE) in its mission to curb inflation.

Speaking after the publication of the latest GDP figures, Chancellor Jeremy Hunt attributed the 0.2 percent growth to the “underlying resilience in the British economy.”

“Of course that’s positive but we still have a big issue with inflation. That’s the number one challenge we face. We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system, and that is our primary focus,” Hunt told Sky News.

While the government’s target inflation rate is 2 percent, the current rate remains at 8.7 percent. The BoE’s Monetary Policy Committee (MPC) sets policy to meet the 2 percent inflation target, as well as the bank rate, which is currently at 4.5 percent.

The MPC’s next meeting will take place next week, where the committee can increase the bank rate, which will affect consumers and mortgage holders across the country.

To achieve long-term growth, increased consumer spending and business investment, the inflation rate needs to drop, the chancellor said.

“We understand that there is real pressure on families with mortgages, on businesses with loans as interest rates go up,” Hunt said, adding that the government was doing “what we can to help people through a difficult patch.”

The government provided a total support of over £94 billion over 2022–23 and 2023–24, an average of over £3,300 per UK household, to help Britons with the rising cost of living.

On Monday, while speaking at the Centre for Policy Studies, Hunt called for the need to increase productivity in both public and private sectors in order to boost economic growth.

“If we increase our productivity growth in the public sector by 0.5 percent a year, we stabilise the proportion of GDP consumed by the state by closing the gap between anticipated growth and anticipated spending up to 2050. And if we replicate that productivity growth in the private sector we start to increase living standards as well,” Hunt said.

The Office for Budget Responsibility has predicted that from the end of this decade, Britain’s public spending will grow by nearly half a percent more than the size of its economy.

Hunt referred to Organisation for Economic Cooperation and Development (OECD) projections showing that Germany, Italy, and Japan will have an even lower growth over the next 25 years, with France about the same and the United States only marginally ahead.

In its new report, published in June, the OECD predicted UK GDP to rise to by 0.3 percent in 2023 and by 1.0 percent in 2024. Inflation will fall owing to higher interest rates and lower food and energy prices, the report said.

Shadow chancellor Rachel Reeves has condemned the ruling party for “crashing” the economy and leaving families facing higher mortgage payments.

Reacting to the possibility of the bank rate increasing over 5 percent, shadow chief secretary to the Treasury Pat McFadden said on Twitter: “More bad economic news for mortgage holders and renters. Tory economic recklessness fueled these mortgage rises. Economic turbulence isn’t a distant threat - it’s happening right now. A Tory reality. And households are paying the price.”

The UK inflation rate dropped for the first time in eight months, but prices on basic essentials remain high.

The country saw a drop in its Consumer Prices Index 12-month inflation rate in April to 10.5 percent, which was lower than November’s 10.7 percent, and down from the peak in October of 11.1 percent. However, annual food price inflation reached historic highs.