Prime Minister Rishi Sunak is at risk of failing to meet his promise to halve UK inflation by the end of this year because prices are proving more sticky than expected, a former Bank of England rate-setter said.
(Bloomberg) — Prime Minister Rishi Sunak is at risk of failing to meet his promise to halve UK inflation by the end of this year because prices are proving more sticky than expected, a former Bank of England rate-setter said.
Martin Weale, now a professor at King’s College London, told Bloomberg TV that the UK is already in the grip of a feared “wage-price spiral” and that “there is a real risk” that Sunak’s target of getting inflation down to about 5% won’t be met.
Falling short on the inflation target would be embarrassing for Sunak, since it was seen as arguably the easiest of five goals he laid out earlier this year. Other pledges, including growing the economy and stopping illegal migration across the English Channel, have proved even more difficult.
The BOE is continuing to grapple with inflation at 10.1%, five times its target, and raised interest rates Thursday by a quarter point to 4.5%, a 12th hike in a row. The Bank hinted at further rate increases if price pressures don’t ease in the coming months.
BOE Raises Key Rate to 4.5%, Saying Further Hikes May Be Needed
Consumer prices are expected to fall automatically by around 4 percentage points by October as recent declines in energy and commodity prices feed through to the economy.
Still, cutting inflation would require “discipline and focus,” Sunak’s spokesman Max Blain told reporters on Thursday. “This is not something that the UK is simply on a glide path to achieve.”
Weale said there was no room for complacency. “We’ve seen inflation being more persistent than had been expected three or four months ago. Particularly with the high level of food-price inflation, that is the kind of thing that is likely to generate sustained pressure in the labor market and that in turn means businesses are going to be having to put up their prices.”
Wages Rise 10% Across England, Finally Catching Up to Inflation
Weale also criticized Sunak for setting an inflation target, saying: “I think he would have been better to leave the discussion to the BOE.”
His comments echo those of the National Institute of Economic and Social Research, which warned Thursday about high inflation and said Sunak’s target was a “misstep” that has made it more difficult to bring inflation back to 2%. Weale is a former director of NIESR.
Weale said he would vote for a rate rise today were he still on the committee. He added that government plans for tax cuts were misguided.
“The national debt is high. We’ve seen that it goes up when something unpleasant happens and doesn’t go down in more normal circumstance. That tells you that nation debt is going to rise indefinitely and that’s the signal cutting taxes now will give.”
A Treasury spokesperson said the governement must “stick firmly to this plan so that everyone’s incomes go further and the right conditions are in place for long-term economic growth.”
(Updates with BOE rate decision and government responses.)
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