‘The plan is working’: Sunak hails falling inflation – but PM warned targets still in jeopardy
Rishi Sunak and Jeremy Hunt have welcomed today’s dramatic fall in inflation to 6.8 per cent, with the prime minister saying it shows his “plan is working”.
The government welcomed today’s news of falling headline inflation, despite expectations the Bank of England is still likely to hike interest rates for a 15th straight time.
However, critics hit back at the prime minister’s claim of
A major driver of the fall in inflation was the falling price of food, and in particular milk, bread and cereal.
Commenting on the fall, Prime Minister Rishi Sunak said it showed “the plan is working”.
“As Prime Minister I am determined to build a better economy and a better country for you, your children and your grandchildren,” he said.
“That starts with tackling inflation. And the news this morning shows that the plan is working.
“If we stick to the plan I’ve set out, we’ll get it done.”
Chancellor of the Exchequer Jeremy Hunt added: “The decisive action we’ve taken to tackle inflation is working, and the rate now stands at its lowest level since February last year.
“But while price rises are slowing, we’re not at the finish line.
“We must stick to our plan to halve inflation this year and get it back to the 2% target as soon as possible.”
Meanwhile, treasury minister John Glen said the the fall showed the government was on course to return to the target level of inflation by 2025.
“But as I say this isn’t a straight line process, there are lots of factors that go into the inflation figures and that is why the Government, working very closely with the Bank of England, are very determined by the decisions we make around public spending, around pay settlements, around not allowing more expenditure to be made, to keep focused on this target.
“Getting inflation down is the most important thing the Government can do to lay the foundations for enduring and strong growth.”
Asked about whether Mr Sunak would meet his five pledges, Mr Glen told Sky News: “A lot has changed since the start of the year, at the start of the year people were expecting a recession. We are not facing that now.
“We are not complacent at all, and when we get to the end of the year we will then, I am sure he (Mr Sunak) will want to report back on the five pledges at the centre of his strategy and aims for this year in Government.”
For almost two decades now, the Bank of England’s Monetary Policy Committee has held independent decision making power over interest rate decisions.
This comes after the rate of UK unemployment rose to 4.2 per cent in the three months to June from 3.9 per cent in the previous three months, the Office for National Statistics said.
This was coupled by the biggest rise in real-term wages since records began with the ONS in 2001. It has sparked new concerns about the Bank of England looking to raise rates to offset wage increases’ inflationary impact.
What do industry say though?
Economic think tanks welcomed the drop in inflation, but threw caution on Sunak’s claim of his plan working.
The Institute for Fiscal Studies economic think tank said the latest figures showed Rishi Sunak’s inflation promise was in jeopardy.
Heidi Karjalainen, a research economist at the IFS said: “The Prime Minister’s target to halve the rate of inflation by the end of the year was always a little odd as there is only so much the Treasury can do to influence the pace of price increases.
“When the target was set, the Prime Minister may have hoped he could rely on falling in energy prices to do most of the work to hit it.
“However, the stubbornly high rate of price inflation for goods and services other than food and energy has put the target in jeopardy.
“With only four months to go, it no longer seems at all clear that inflation at the end of the year will have fallen by enough to achieve it.”
Think tank the Resolution Foundation said the Bank of England faced a tough task to tame inflation despite July’s fall in the Consumer Prices Index.
James Smith, research director at the Resolution Foundation, said: “Inflation has fallen rapidly over the past six months, but the UK still has the highest rate in the G7 and the Bank faces a daunting task in further taming price pressures.
“Accelerating pay growth will make even the Prime Minister’s promise to halve inflation hard to meet, let alone the Bank’s mandate of reducing it to 2%.
“The UK has experienced the third largest price pressures of any advanced economy since the pandemic.
“This highlights just how painful this cost of living crisis continues to be, and how unwise it would be to meddle with policies like benefits uprating that are designed to protect families from price pressures like this that are beyond their control.”
Meanwhile, opposition figures including the the Trades Union Congress and Labour welcomed the fall – but insisted policies are not right to tackle long term problems.
Shadow chancellor Rachel Reeves said that despite the fall in the Consumer Prices Index to 6.8% in July “inflation in Britain remains high and higher than many other major economies”.
She said: “After 13 years of economic chaos and incompetence under the Conservatives, working people are worse off – with higher energy bills and prices in the shops.
“Labour’s plan to build a strong economy will make working people better off by boosting growth, improving living standards and cutting household bills.”
The TUC which has been a major advocate of mass strikes in recent months, threw caution to the wind on falling inflation.
General secretary Paul Nowak said: “We all want to see lower inflation.
“But it will take more than price rises slowing for working people to feel better off – especially with food bills remaining sky high.
“Real wages are still worth less today than in 2008 after the longest pay squeeze in 200 years.
“And at the same time, unemployment and insecure work are shooting up.
“Our economy is far from out of the woods – too many long-run challenges remain unaddressed.”
Press Association – Henry Saker-Clark