UK Tax Cuts Unlikely Amid High Inflation. Caution against pushing “money into people’s pockets” comes after the Bank of Britain hints rates will be on the rise again.
The chancellor has sent out a word of caution to the public saying that tax cuts this autumn will be prevented by high inflation as the Bank of England show signs of, yet another, rate rise in a bid to ease cost of living pressures.
Jeremy Hunt said that due to the danger of overstimulating the economy, making it harder to bring it down, he would be cautious about putting cash into consumers’ pockets in his November package.
In an interview, Hunt stated that “When you’re trying to bring down inflation, you have to be really careful not to pump extra money into the economy, as much as you would like to – not to pump extra money into people’s pockets – because that can push up prices and keep inflation higher for longer.”
He also said that nonetheless, money will be tight in any case due to the impact of soaring inflation rates and rates rising on the government’s debt interest payments. And added that “The one thing I can absolutely say is that our focus in the autumn statement will be on bringing down inflation and delivering the prime minister’s goal to halve inflation and the Bank of England’s target to get it down to 2%.”
The comments from Hunt came at the same time as Catherine Mann, a member from the Bank’s rate-setting monetary policy committee stated that she would be prepared to cause some hardship to the economy with raising interest rates too far instead of taking the risk of allowing inflation to become fixed.
Mann stands on the side of tightening too much over too little as doing too little would only lead to a persistent cost of living crisis that in the end would take even more extreme measures to fix.
Mann believes there is a chance that the Bank of England may be tough and too soft with the way it is approaching interest rates. Further stating “Which mistake would I rather make and do the data and analysis help me in that judgment? At issue in the current conjuncture, and speaking just for myself, the risk of tightening too little is more salient.”
If the Bank underestimated the constant rise in inflation and set policy with a world that “may no longer exist” then the Bank may itself be contributing to the overestimate of the inflation target. “And the longer this overshoot is allowed to continue, the more likely a departure from the old ‘low inflation, low volatility’ steady state.”
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