The United Kingdom is heading for a recession, Lord Hammond warned, saying “all data point that way”.
The former chancellor told Sky News that the country is facing “a very, very difficult period in the short term”.
He said he believed the UK economy would slow sharply in the autumn.
Lord Hammond said this was “the next part of the cycle that began with the COVID pandemic”, when a “huge response from the government” was given.
“To think that we can somehow get over this, leave the section on the table and act as if nothing has happened is unrealistic, naive,” he said.
“There must now be a part of the cycle in which to correct the emergency actions taken during the pandemic.
“And a lot of what we see right now in terms of inflationary pressures in the national economy is a result of people saving a lot during the blockade period, and those savings have been released into the economy in the last six months.”
Please use the Chrome browser for a more accessible video player
2:49 The UK economy contracted by 0.3% in April
He said that although the war in Ukraine was one of the drivers of inflation, the problem began long before the conflict, fueled by COVID stimulus packages provided by the United Kingdom, the United States and other countries.
He said Brexit had also affected rising prices because it had led to changes in supply chains.
“When we get out of the COVID crisis, supply and demand are exhausted,” he said.
He said there were many parts of the economy that “have not yet returned to normal”, so “there will probably be an effect”.
Please use the Chrome browser for a more accessible video player
1:34 CBI Chief: The government can prevent a recession
Asked if the government should increase spending or cut taxes, he said people “are looking for immediate and painless solutions”.
“During the COVID crisis, they were invited to believe that the government could always provide immediate and painless solutions,” he said.
“But you can’t solve the problem of inflation by bringing more liquidity into the economy – that’s fueling the fire.
“Unfortunately, the problem we are facing now is not the short-term pain of 10% inflation. We have to live with that.
“The question is whether we can now manage inflation down next year to return to something normal.
Listen and subscribe to The Ian King Business Podcast here.
He said the government “cannot compensate people for all the inflationary pressures” because short-term relief would lead to long-term inflation.
Lord Hammond said the economic slowdown in the autumn was “probably a good thing”.
He said he knew that “people will not see it this way”, but by “squeezing the simulation before it’s built in, we have a real chance to get back in much better shape next year”.
He expressed support for the decisions of the Bank of England to raise interest rates over the past few months.
Add Comment