Rishi Sunak faces double blow on economy with inflation forecast to rise and interest rate hike expected
Rishi Sunak is set to face a double blow on the economy this week with inflation forecast to increase and interest rakes likely to be raised.
The Prime Minister has been more optimistic of reaching his economic goals in recent months after inflation finally began falling rapidly.
But an increase in the global price of oil has pushed up petrol and diesel costs, leading to a forecast increase in inflation from 6.8 per cent to 7.1 per cent when updated statistics are published on Wednesday.
The next day, the Bank of England’s Monetary Policy Committee will announce its latest decision on whether or not to raise interest rates.
Markets expect that rates will increase from 5.25 per cent to 5.5 per cent, their highest level since early 2008 – although growing numbers of economists now believe that could be the Bank’s final increase, ending a cycle which began in December 2021 as inflation started to take hold.
Mr Sunak has pledged to halve inflation over the course of the year, a target he will miss if the rate of price rises ends up being significantly higher than 5 per cent by January.
Ministers have been hopeful that the UK will follow the same trajectory as the US, where inflation started falling quickly after a long plateau – although the global oil price has also pushed up prices further for American consumers in recent months.
The Prime Minister has avoided commenting publicly on the path of interest rates but Government aides say privately that they hope the upward march of rates will soon end, bringing partial relief to mortgage borrowers who have faced ever-higher costs.
Jeremy Hunt is currently working on his Autumn Statement, to be delivered in late November, which will lay out limited changes to taxation and state spending, as well as an update on the Government’s progress in keeping national debt under control.
The Chancellor is under pressure from Conservative MPs to cut taxes as soon as possible, although Treasury officials believe there will be little scope to do so without breaking Mr Hunt’s self-imposed fiscal rules.
Sir Keir Starmer said on Sunday that if Labour wins power at the next election, he will seek to bring down the tax burden by growing the economy. He told Sky News: “I want the tax burden to come down, particularly on working people. That’s been our consistent position. The difference with me is that I am absolutely laser focused on growing our economy.”
The Labour leader added: “I’ve said if we are privileged enough to come into power and to serve, we will have a number of missions. The number one mission is getting the highest sustained growth in the G7 and doing it not just in London and the South-East, but across the whole of the United Kingdom with a different model of partnership with our businesses.”
