UK Cabinet Minister Michael Gove have warned of tough times ahead for the country as the government and Bank of England are trying hard to tackle soaring inflation.
Speaking at The Times CEO Summit in London, Gove stressed that “while government has a responsibility to help the very poorest at a time when the cost of living is increasing”, it “also have a responsibility to bear down on the root causes of inflation”.
He called for pursuing “a monetary policy that squeezes inflation out of the system and that will mean undoubtedly” that the government needs “to maintain control” of the country’s finances and that Downing Street needs “to ensure in the difficult period over the next few years” the UK is “not knocked off our course”.
“I think it is inevitably the case that, when you are squeezing inflation out of the system, you will rely on the Bank of England and the Government having the fiscal and the monetary policies which will inevitably mean we cannot do all the things that we would in ideal circumstances like to do in order to support people through a difficult period,” the cabinet minister said.
In a separate interview with the US media outlet News Desk, Gove revealed that he had “to scale back his levelling up ambitions” due to the economic squeeze, stressing that there can be no new reductions in tax until inflation is under control in the UK.
Already in Recession?
This followed With Chancellor Rishi Sunak urging Britons to “feel confident” he can get the reeling UK economy “back on track”, even though experts insist that the country may already be in recession.
Rupert Harrison, portfolio manager at the financial services firm BlackRock, told the BBC that “It’s very, very likely now that the second quarter is going to see negative growth.”
Harrison, who served as economic adviser to former Chancellor George Osborne, warned that “[…] effectively, growth is around zero and may get worse as we [the UK] head into the autumn, particularly with energy prices going up.”
He was echoed by ex-Chancellor Philip Hammond, who suggested in an interview with Sky News that Britain faces a "very, very difficult period ahead in the short term”, arguing that the UK economy may slow down sharply in the autumn.
“To think that we can somehow move on from that, leave the tab on the table and act as if nothing had happened is unrealistic, is naive. There's now got to be a part of the cycle where we correct for the extraordinary action that was taken during the [COVID-19] pandemic,” the former chancellor pointed out.
When asked whether the government should increase spending or cut taxes, Hammond said that people are “looking for instant and pain-free solutions” and that “you can't solve an inflation problem by injecting more liquidity into the economy - that is pouring fuel on the fire.”
"And unfortunately, the issue in front of us at the moment is not about the short-term pain of inflation at 10%. We're having to live with that. The issue is whether we can now manage inflation down over the next year or so, to get back to something like normal,” he underlined.
OECD Warns of Zero Growth in UK Economy Next Year
The comments came after the Organisation for Economic Co-operation and Development (OECD) suggested in its half-yearly economic outlook that the UK economy might slow to a standstill already next year.
With inflation in the UK already hitting a 40-year-high of 9%, the leading international think tank warned that the figure would continue rising to peak at above 10% later this year. According to the OECD, the British economy will grow by 3.6% in 2022 and there will be zero growth in 2023.
On Thursday, the Bank of England implemented a fifth consecutive hike to interest rates amid its efforts to rein in soaring inflation. The Monetary Policy Committee, which voted 6-3 to increase the Bank Rate by 25 basis points to 1.25%, said in a statement that it will “take the actions necessary to return inflation to the 2% target sustainably in the medium term”.
The statement followed the Bank of England’s governor Andrew Bailey cautioning last month that UK households face a “very big income shock”, adding "[The inflation risk factor] that I am going to sound rather apocalyptic about is food.”
He was giving evidence to the Treasury Select Committee amid criticism from senior Tories about his response to growing prices driven by inflation surging well past the government’s target of 2%. The developments unfold as s the growing cost-of-living crisis continues to take its toll on UK consumers, with increasing inflation induced by record energy prices, post-COVID-19 pandemic supply chain disruptions and the fall-out from the sweeping sanctions that Western countries slapped on Russia over its ongoing special military operation in Ukraine.