Stubborn inflation could force the Bank of England to raise interest rates in the run-up to the next UK election even if it means driving the economy into recession, a former permanent secretary to the Treasury says in a Twitter thread that may not thrill the mandarins still working in his old department. UK inflation is more persistent than elsewhere, Nick Macpherson argues, causing a wage-price spiral for employers and consumers that rising interest rates haven’t stopped. Instead they’ve raised the cost of mortgages for householders and borrowing for the government, to the point that it’s the fastest-rising component of public spending. That makes new money for public services very hard to find, and leaves the BoE with little choice but to double down on rates to tame inflation, which Rishi Sunak has promised to halve. Part of the problem is fixed-rate mortgages, which mean a long lag before rate rises bite into spending – but there’s not much Sunak can do about them.
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