UK foreign secretary rejects idea BOE needs to create recession

FOREIGN Secretary James Cleverly rejected suggestions from some economists that the only way to drive down UK inflation is to provoke a recession, arguing the government is pushing for growth. 

“This idea that we should consciously be going into recession I don’t think is one that anyone in government would be comfortable subscribing to at all,” Cleverly told Sky News on Thursday (Jun 22). “We need to grow the economy. High interest rates don’t help with that.”

The central Bank of England is due to raise interest rates to their highest level in 15 years on Thursday against a background of stronger than expected inflation. Economists and investors expect the Monetary Policy Committee to push ahead with another quarter-point increase in its key rate to 4.75 per cent. 

Cleverly’s comments put him at odds with other opinion at the top of government. Last month, Chancellor of the Exchequer Jeremy Hunt signalled that he is prepared to accept a recession if interest rate rises help curb inflation. Asked if he was comfortable with further interest rate rises even if they risk pushing the country into a recession, Hunt told Sky News at the time, “Yes, because in the end inflation is a source of instability.”

A recession now is inevitable, according to Adam Posen, who served on the Bank of England’s Monetary Policy Committee, told The Telegraph newspaper Thursday. He predicted interest rates will have to rise to 6.5 per cent or higher to tame inflation, which would likely tip the economy into recession. 

Meanwhile, Karen Ward, a managing director at JPMorgan Chase & Co and adviser to Hunt, said on Wednesday the central bank had made a “misjudgment” in believing that inflation was still being driven by external rather than domestic factors.

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“The difficulty for the bank is that they need to create a recession to create uncertainty and frailty, as it’s only when companies feel nervous about the future that they think they won’t put through price rises,” Ward said. “There’s no other way around it.” BLOOMBERG