Rishi Sunak has backed interest-rate hikes to calm inflation even if they increase the risk of the UK entering a recession.
The prime minister has set halving inflation by the end of the year as one of the five key tests he has asked voter to judge him on.
But in a new blow to that ambition, ministers have been warned that the UK will see the highest inflation rate and nearly the slowest growth of any advanced economy this year.
Last month the chancellor Jeremy Hunt said he was willing to accept a recession if it brought inflation down.
Asked if he agreed with that approach, Mr Sunak told the BBC: “Yeah, I think what the Chancellor was saying is that inflation is the challenge that we must confront.
“Obviously, monetary policy interest rates are decision for the Bank of England, so it wouldn’t be right for me to comment on that. But I set out five priorities, halve inflation, grow the economy, reduce debt, cut waiting lists, and to stop the boats. The first of those is to halve inflation. That’s the thing that I want to make sure we deliver, because that’s what will help. That’s what in the long term, that is the best way to help British families.”
Asked at the end of May if he was comfortable with the Bank acting to bring down inflation even if doing so could precipitate a recession, Mr Hunt said: “Yes, because in the end inflation is a source of instability.
“If we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.
“I have to do something else, which is to make sure the decisions that I take as chancellor – very difficult decisions to balance the books, so that the markets, the world, can see that Britain is a country that pays its way – all these things mean that monetary policy at the Bank of England [and] fiscal policy by the chancellor are aligned.”
In a new forecast the Organisation for Economic Co-operation and Development (OECD) said inflation in Britain would average at 6.9% this year.
Clare Lombardelli, the OECDs chief economist, said: “Inflation in the UK is higher and proving to be higher than other countries at the moment.”
She said this was partly due to high labour costs as wages rise, and the fact that Britain is more exposed to high global energy prices.
“In our projections it is expected to see faster fall in inflation, which is set to return in 2024 towards target”, she added, with the rate set to drop sharply to average 2.6% next year.
