'The Government cannot guarantee a pain-free exit from every problem' Tory ex-chancellors warn living standards will have to fall to bring inflation under control 🔴 Exclusive HugoGye
He warned that the Government would have to prepare voters for lower living standards in the short term thanks to the impact of higher interest rates, which slow economic growth and reduce the spending power of mortgage borrowers.
The Tory peer said: “A fall in living standards is inevitable, it is happening in other countries and the answer is to get inflation down. Nobody wants a recession, but some slowdown – hopefully not a recession – is necessary.” He added that supply-side reforms, designed to boost the labour market by making it easier for people who are not working to take up jobs, would take time to have any impact.: “I’m not sure there is anything much more he can or should be doing. The Government cannot guarantee a pain-free exit from every problem.
They insist there is no realistic option other than to keep a tight fiscal policy, with no additional public borrowing, and wait for rate hikes to take effect. Increases in interest rates are intended to remove demand from the economy by ensuring individuals have less spending power, which limits the ability of companies to raise their prices.
Mr Sunak admitted this week that it is more difficult than in the past to gauge the effect of interest rate increases because a large majority of mortgage holders are on a fixed rate, which means they do not personally feel the impact until their term expires and they have to negotiate a new deal.
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