Rishi Sunak has said he has no “magic wand” to stop increasing inflation as he admits that the issue could be out of the UK’s control.
Sunak today said increasing rates of UK inflation were down to global supply chain issues post-Covid and surging global energy prices and that there was little he could do to fix these problems.
The Consumer Price Index (CPI) increased by 3.1 per cent annually in September, which is above the Bank of England’s target range.
It is also the largest increase in prices the UK has experienced in a number of years.
New Bank of England chief economist Huw Pill told the Financial Times that a potential interest rate rise next month was a “live issue”, however some believe this will have little effect as prices are not rising as a part of the normal economic cycle.
Torsten Bell, director at the Resolution Foundation think tank, told City A.M. that “interest rate rises won’t do much to make any difference to inflationary price rises, because a lot of it is coming from hydrocarbons” which are priced at a global level.
Sunak has consistently downplayed inflation fears this year, calling them “transitory”, however he appeared to strike a more cautious tone today in a BBC interview.
“If you take the last inflation number which is just over 3 per cent, which is higher than we normally target, and you look at what’s causing that and the bulk of that increase is down to two things,” he said.
“One of those is that as economies have reopened rapidly after coronavirus that has put pressure on global supply chains and the other part of that increase is very much down to energy prices.
“Both of those factors are global factors, we’re not alone in experiencing those problems. I don’t have a magic wand that can make either of those things disappear.”
Sunak will unveil his autumn Budget on Wednesday, with £20bn of spending promises already revealed by the Treasury.
The chancellor will head to the Commons with a focus on levelling up transport links outside London, research and development in health, and a “skills revolution”.
He was also pressed this morning on whether he would be mapping out future tax cuts in his Budget.
The UK’s tax burden will be at its highest since the 1960s after corporation tax for the country’s biggest firms jumps from 19 to 25 per cent in 2023.
It has been speculated that Sunak will look to cut taxes at some point in the next two years in the lead up to the next General Election.
When asked if he will be a “tax cutting chancellor” today, Sunak said: “I’ll talk about that next week at the Budget. Of course my instincts are to do that, that’s what I believe, I want to reward people for working.
“I think that’s a good thing and will drive economic growth, but as we discussed I’ve also had to grapple with an economic shock – the biggest for 300 years, borrowing at its highest since World War II.”