Jeremy Hunt has backed further interest rate rises to bring prices under control as figures showed only Argentina and South Sudan experienced bigger increases in underlying inflation last month.
The UK chancellor signalled his support for Bank of England rate increases after a week when core inflation, which excludes energy and food, hit its highest level since March 1992.
Asked if he would be comfortable even if further interest rate rises precipitate a recession, Hunt said: “Yes, because in the end, the inflation is a source of instability.”
April’s rise in annual core inflation — from 6.2 per cent to 6.8 per cent — was the third biggest jump, after Argentina and South Sudan, in 33 countries tracked by the Financial Times, based on Eikon data.
In 24 of the countries, core inflation went down or remained unchanged.
Ruth Gregory, economist at Capital Economics, said Britain’s higher core inflation reflected higher wage growth and labour shortages. She attributed the shortfall in labour supply partly to Brexit and partly to long NHS waiting lists, which she associated with long-term sickness.
Gregory added that she expected the fall in core inflation to “take longer in the UK” than elsewhere.
Susannah Streeter, senior investment analyst at asset manager Hargreaves Lansdown, warned of the risk of “a vicious circle” in the country, with higher wage demands leading to higher costs.
In contrast with the UK, core inflation in the US fell from 5.6 per cent to 5.5 per cent, well below its September peak of 6.6 per cent, while in the eurozone the measure went down from 5.7 per cent to 5.6 per cent.
“It is not a trade-off between tackling inflation and recession,” Hunt told Sky News. “In the end, the only path to sustainable growth is to bring down inflation.”
He added that to encourage growth, the government had to “support the Bank of England in the difficult decisions that they take”.
Government borrowing costs have already risen in response to this week’s inflation data, in which the headline rate fell to 8.7 per cent, from March’s 10.1 per cent, but remained well above the BoE’s forecast.
The yield on two-year gilts, which are sensitive to interest rate expectations, jumped as much as 0.6 percentage points to more than 4.5 per cent, its highest level since then prime minister Liz Truss’s “mini” Budget sowed chaos in financial markets.
Markets now expect the BoE to raise interest rates to 5.5 per cent by year-end, half a percentage point higher than before the publication of the inflation data, according to Eikon figures.
The BoE’s monetary policy committee will meet next month to decide whether to alter the current rate of 4.5 per cent.
Prime Minister Rishi Sunak has promised to halve inflation this year as one of the five pledges on which he intends to fight in Britain’s next general election. When he made the vow in January, inflation stood at 10.1 per cent, but was predicted by the Office for Budget Responsibility to fall to 3.75 per cent by the end of the year.
Some economists have since predicted Sunak may miss his target.
Hunt said “there was nothing automatic” about reducing inflation, adding: “It is a big task.”