British Chancellor Rishi Sunak said his latest package of support for British households would have a “minimal impact” on inflation after the government announced an unexpected tax on energy companies to fund lower fuel bills.
“Our estimate and my view is that it will have a minimal impact on inflation,” Sunak told Sky News on Friday. “The reason is twofold. One [reason] this is because what we do is very much focused on those who need it most, and secondly because we also raise money to help pay for it.
“Some people might say … you should just spend even more, borrow even more – I think it would be irresponsible because it would risk rising inflation, interest rates and mortgages,” he said.
On Thursday, Sunak announced a £ 15 billion support package, including a £ 400 rebate on energy bills for all households.
The aid will be partly financed by an unexpected tax that could generate £ 5 billion from oil and gas companies this year and another £ 3 to £ 4 billion from energy groups.
The vast majority of economists who commented on Sunak’s plans disagreed with his claim that it would not be inflationary, but offered a number of insights into the degree of additional stimulus and inflation that support for households would bring.
Steffan Ball, Britain’s chief economist at Goldman Sachs and a former adviser to Philip Hammond as chancellor, said additional household income would boost spending and ensure that “the UK narrowly avoids a recession.”
But he said the result 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 need to move to contract territory to control wage growth and inflationary pressures,” he said on Friday.
Central banks around the world are trying to find a “neutral” level of interest rates that would curb rising inflation without plunging their economies into recession.
Shadow Chancellor Rachel Reeves welcomed Sunak’s support package, but said more could be done.
“The profits that are being made.” [energy] companies have grown more than even Labor expecters, so more money can be raised, Reeves told BBC Radio 4’s. Today program on Friday.
“I welcome the package. It was borrowed from the Labor Party, but imitation is the most sincere form of flattery, “she added.