UK Chancellor Rishi Sunak said his latest package of support for UK households would have a “minimal impact” on inflation after the government announced an unforeseen tax on energy companies to fund lower fuel bills.
“Our assessment and my opinion is that this will have a minimal impact on inflation,” Sunak told Sky News on Friday. “It simply came to our notice then. one [reason] is because what we do is very targeted to those most in need, and second, because we also raise money to help pay for it.
“Some people may say. . . you just have to spend more, take more loans – I think that would be irresponsible, because it would risk increasing inflation, interest rates and people’s mortgages, “he said.
On Thursday, Sunak announced a £ 15 billion support package, including a £ 400 discount on energy bills for all households.
The support will be partly funded by an unforeseen tax that could generate £ 5 billion from oil and gas companies this year and another £ 3-4 billion from electricity groups.
Most economists who commented on Sunak’s plans disagreed with his statement that it would not be inflationary, but they suggested a number of views on the level of additional stimulus and inflation that household support would bring.
Stephen Ball, Britain’s chief economist at Goldman Sachs and a former adviser to Philip Hammond as chancellor, said the extra income for households would support spending and ensure that “the UK will avoid a recession”.
But he said the consequence would be greater inflationary pressures, forcing the Bank of England to act more decisively. “Yesterday’s policy support package gives us more confidence in our view that the BoE will have to rise in a shrinking territory to control wage growth and inflationary pressures,” he said on Friday.
Central banks around the world are struggling to find a “neutral” level of interest rates that will curb rising inflation without driving their economies into recession.
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Shadow Chancellor Rachel Reeves welcomed the Sunak support package, but said more could be done.
“The profits made by [energy] companies have grown by more than even Labor expected, so there is more money that can be raised, “Reeves told BBC Radio 4’s Today program on Friday.
“I welcome the package of measures. It is borrowed from the Labor Party, but imitation is the most sincere form of flattery, “she added.
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