An adviser to the Chancellor called on the Bank of England to create a recession to bring down inflation.
Economist Karen Ward warned there are signs the UK is falling into a price-wage spiral that is fuelling the cost of living crisis.
The JP Morgan strategist, who sits on the Chancellor’s economy advisory council, said that without weakness in the economy, inflation might stick around for much longer.
She said: “The difficulty for the Bank of England – I mean, no-one envies them their job at the moment – is they have to therefore create a recession,” she said.
“They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’.”
“It’s that weakness in activity which eventually gets rid of inflation.”
Last month Mr Hunt said he was comfortable with a recession to bring down rising prices ”because in the end, inflation is a source of instability”.
Some economists have predicted the Bank will hike up interest rates today by 0.5 percent after inflation remained stuck at 8.7 percent.
Rob Morgan, chief investment analyst at Charles Stanley, said: “An increase to 4.75 percent is all but nailed on, but a shock-and-awe rise of 0.5 percent to five percent cannot be ruled out.”
“The Bank of England will likely maintain tight policy for the remainder of the year, meaning further interest rate rises and no significant rate cuts until 2024.”
The interest rate the Government pays on two-year gilts – essentially IOUs issued by the Treasury – to a fresh 15-year high of nearly 5.09 percent.
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