![]() Tax rises work the same way, by squeezing household spending, but have the added benefit of improving the public finances by raising income for the government. It could now try the blunt stick of docking benefits - while bracing itself for a dramatic voter backlash.Īdvocates of Modern Monetary Theory argue that the way to tackle high inflation is to raise taxes instead of interest rates. In the March budget, the government tried the carrot of childcare support and pension giveaways to bring parents and older workers back into the labor force. They are not looking for work, many on the grounds of ill health. There are 350,000 more economically inactive people in the UK than before the pandemic. But stopping that was a core Brexit argument, so Sunak would risk a Conservative mutiny.Īnother way of addressing the tight labor market might be to cut working-age benefits, to give those out of work little option but to find a job. Increase supply, for example by reintroducing freedom of movement with the European Union, would solve it. The problem is the shortage of workers, meaning staff can demand pay rises by threatening to move jobs. The main mechanism for that has been the tight labor market, where regular private sector pay is growing at 7.6% - a level that is incompatible with the 2% inflation target. Inflation is stickier in the UK than any major advanced economy because it is embedded in domestic price setting. Increased borrowing would add to inflationary pressures.” ![]() “This will require continued discipline on public spending and tax policy. “We will continue to ensure that fiscal policy remains aligned to monetary policy by controlling public sector borrowing,” he wrote in an exchange of letters with Bailey. It’s what Chancellor of the Exchequer Jeremy Hunt is doing, though the government is paying the price with widespread strike action. No tax cuts, despite all the Tory calls for a pre-election handout. No additional investment, and wage restraint where possible. The first – and simplest - thing the government can do is not to aggravate inflation by increasing public spending. But the prime minister does have options to help - if he is willing to ignore the politics. That explains why members of Sunak’s Conservative Party have lashed out at the central bank, which they say has primary responsibility. With a general election expected next year, Sunak has a major vested interest in getting inflation dealt with as quickly as possible. ![]() Voters would also suffer if the Bank of England triggers a recession, as Governor Andrew Bailey signaled Thursday he’s prepared to do if that’s what it takes. Russia Latest: Biden, Zelenskiy Discuss US Aid in Wake of Mutiny Russia Latest: Kremlin Says It Gave Prigozhin Deal to End Mutiny The Wagner Mutiny Foreshadows a Russian Defeat Prigozhin Turns Forces Back in Deal With Kremlin to Drop Charges Silence Cloaks Kremlin After Russian Mutiny Against Putin Soaring interest rates are hurting mortgage-holders, and renters as their landlords pass on higher borrowing costs. (Bloomberg) - Sticky UK inflation is a political headache for Rishi Sunak’s government. ![]()
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