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Jeremy Hunt’s declaration that it’s worth causing a recession if we’re going to pay the necessary price to curb inflation is shocking.
Economists usually agree that there is a trade-off between economic growth (and employment) and inflation, with the former leading to the latter in many situations.
But it is primarily the Bank of England’s job to determine that balance through the adjustment of interest rates. Politicians usually avoid questions about how the World Bank should discharge its mandate, rather than digging into the issue like Mr. Hunt did.
“We have to support the difficult decisions the Bank of England is making,” he said. Fighting inflation and growing the economy are both among Rishi Sunak’s five “pledges,” but he made it clear that inflation must come first.
There is a reason for his frankness. With the Bank of England and the International Monetary Fund (IMF) raising their outlook for the UK economy, the UK is no longer at the bottom of the G7 league table and a recession is becoming less likely.
Meanwhile, inflation is much worse than expected, and while inflation is decelerating, it is not as fast as once thought, ensuring that the target of halving inflation by the end of the year is met. very few.
Moreover, there is a direct link between the two indicators, with stronger-than-expected consumer demand boosting both GDP and inflation.
So Mr. Hunt is secretly confident that talking about the risk of a recession poses little danger of actually triggering a recession, but rather just spreads the message to the public that the government is determined to tackle inflation. ing.
His verdict is backed by the IMF, which says governments should not try to steer fiscal policy in the opposite direction of monetary policy. This is Liz Truss’s attempt to boost growth while the Bank tries to keep prices down.
If he can strike that delicate balance, he will be seen as an excellent political communicator.
But the big danger is that voters will remember Hunt’s declaration that this was a price worth paying should the UK end up in recession, and punish him for it.