Chancellor Jeremy Hunt has backed interest rate hikes being used to calm soaring inflation even if they increase the risk of pushing the UK into recession.
Mr Hunt insisted in an interview aired on Friday that the “only path to sustainable growth” is to bring down the high prices behind the cost-of-living crisis.
The Bank of England has been hiking interest rates as one measure to tackle inflation, but they could raise them even higher than the 4.5% they currently stand at.
Though down from 10.1%, the Consumer Prices Index of inflation remains stubbornly high at 8.7% while food remains alarmingly expensive.
Mr Hunt told Sky News that prioritising measures to slow rising prices was necessary even if rate hikes damage the UK’s gross domestic product, or GDP, a measure of the size of the economy.
Asked if he was comfortable with the Bank acting to bring down inflation even if it could precipitate a recession, Mr Hunt said: “Yes, because in the end inflation is a source of instability.
“If we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.
“I have to do something else, which is to make sure the decisions that I take as Chancellor, very difficult decisions to balance the books so that the markets, the world, can see that Britain is a country that pays its way – all these things mean that monetary policy at the Bank of England (and) fiscal policy by the Chancellor are aligned.”
Prime Minister Rishi Sunak pledged to halve inflation this year, making the promise in January when the figure stood at 10.1%.
The Bank’s governor Andrew Bailey said there is still a chance the Government will meet the pledge despite the challenges.
The International Monetary Fund has also upgraded its growth forecast for the UK, now expecting it to avoid a recession and grow slightly by 0.4%.
Mr Hunt told Sky: “It is not a trade-off between tackling inflation and recession.
“In the end, the only path to sustainable growth is to bring down inflation.”
Liberal Democrat deputy leader Daisy Cooper said: “This would be a recession made in Downing Street. Rishi Sunak’s promise to grow the economy has been left in tatters.
“This Government’s failure to cut inflation is sending mortgage rates spiralling as the Conservative economic chaos continues.”