UK has no choice but to raise interest rates to curb inflation, says Jeremy Hunt | Interest rates

Jeremy Hunt has said the UK has no alternative but to raise interest rates to bring down inflation , as households brace for the Bank of England to increase borrowing costs further next week.

The chancellor said the government would be unstinting in its support for the central bank to do what it takes to squeeze high inflation out of the system amid the cost of living crisis.

In its most aggressive round of interest rate rises in decades, the Bank has already increased borrowing costs from 0.1% in December 2021 to 4.5%, and financial markets expect another rise of at least a quarter-point at its next policy meeting on 22 June. Predictions suggest rates could peak above 5.5% before Christmas.

Growing numbers of households are coming under pressure from the higher cost of mortgages and loans, adding to the burden on their finances while inflation is at its highest rate since the early 1980s.

The Resolution Foundation thinktank forecasts that 1.6 million mortgage holders will come to the end of cheaper fixed-rate deals this year, adding about £2,300 to a typical borrower’s annual repayments.

Asked on the BBC if he was following John Major’s dictum on tackling inflation when the former prime minister was chancellor in 1989, that “if it isn’t hurting, it isn’t working”, Hunt said: “In the end there is no alternative to bringing down inflation, if we want to see consumers spending, if we want to see businesses investing, if we want to see long-term growth and prosperity.

“We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system.”

Major made his comment at a time when the Treasury was in charge of setting interest rates to manage inflation. Tony Blair’s administration handed that responsibility to the Bank in 1997 when it granted the central bank independence.

Rishi Sunak’s government is under mounting pressure over the blow to millions of households from higher borrowing costs. Almost a third of voters blamed the government for soaring mortgage costs after Liz Truss’ mini-budget last autumn, which triggered turmoil in financial markets.

The prime minister pledged in January to halve the UK’s annual inflation rate by the end of this year, but economists say his target is increasingly at risk because inflation remains persistently high.

UK government borrowing costs rose above the levels hit during Truss’s premiership on Tuesday, after stronger than expected jobs and pay figures reinforced expectations that the Bank would take action to curtail stubborn inflation.