Minister Doesn’t Rule Out Recession As Inflation Set To Hit 11% And Growth Downgraded
The Bank of England hiked interest rates on Thursday as well as downgrading growth and predicting inflation to rise even higher (Alamy)
Business minister Paul Scully has said the government must do “everything we can to weather that storm” amid fears of a recession with spiralling inflation and stagnant growth.
He said it was a “global situation” and other countries were also seeing rising prices. He pointed to the £37bn of support Chancellor Rishi Sunak has put in place to deal with the cost of living crisis.
But yesterday’s dire warnings from the Bank of England, after it was forced to push interest rates up for a fifth time, helped send stock prices tumbling. The FTSE 100 index of leading companies in London suffered its worst day since early March with a fall of 3.1 per cent, and is down 7.4 per cent on the month.
Scully was unable to rule out a recession when asked by Sky News this morning whether this was a risk. He instead reiterated that the government has put measures in place to mitigate economic fallout, including reducing the threshold before people start to pay National Insurance.
Speaking later to LBC, the minister said he wants "to get back to being a low-tax government trusting people to spend their own money”.
But he said high spending necessitated by Covid had put the government in a difficult position.
"We put £408bn into the economy over Covid – that does give us 408 billion reasons to get this next bit right, to make sure that the gains that we had protecting livelihoods and businesses don't get lost in these headwinds that are with us," he added.
"There are some tax cuts that are still going through, whether it's the air passenger duty, the 5p off fuel duty – albeit that that's obviously got swallowed up by massive global pressures.
"But importantly for businesses and growing, the super deduction on capital investments; and for individuals, the changes to National Insurance thresholds which they will actually see – something like 80 per cent of workers will see more money in their pay packet next month when that kicks in.”
The consumer prices index hit a 40-year high of 9 per cent in April when the energy price cap was hiked, but with the regulator Ofgem set to push it even higher at the next review date in the autumn, from £1,971 per year to around £2,800, that could lead to 11 per cent inflation in October, the Bank said.
In its reports on Thursday it also downgraded its forecast for GDP for the second quarter of the year, with negative growth of 0.3 per cent expected across the quarter.
Analysts think this combination of rocketing inflation, rising interest rates and slowing growth could combine to tip the world into recession.
Rupert Harrison from financial services company BlackRock, and an adviser to George Osborne during his time as Chancellor, told the BBC yesterday “we may already be in recession in the UK”.
But Sunak has said people should be "reassured" that runaway inflation will be controlled, telling ITV the UK has “three tools at our disposal”, the Bank of England, reducing borrowing and debt, and getting more people into work.
"They will all help and people should feel confident about that,” he added.
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