Jeremy Hunt has admitted Britain is stuck in a “low growth trap” but vowed to stick to his plan to bring down inflation.
The chancellor was speaking after official figures showed interest rates will remain high up to the next general election with rates not expected to fall until late next year.
The Bank of England on Wednesday (August 3) raised the base rate for the 14th time in a row, taking it from 5 per cent to 5.25 per cent in a bid to tame inflation.
It means mortgage holders coming off fixed-rate deals now face average additional repayments of about £3,000 a year.
Threadneedle Street also signalled that borrowing costs could remain high for a prolonged period of time to keep a lid on price rises.
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Mr Hunt said the UK and other western countries were stuck in a low-growth trap which he was determined to break free from.
He told Sky News: “What you’ll see from me in the autumn statement is a plan that shows how we break out of that low-growth trap and make ourselves into one of the most entrepreneurial economies in the world. That’s what we want.”
The chancellor also said it was important not to “veer around like a shopping trolley” and follow the Government’s current path in order to meet its key goal of halving inflation. The remark echoed criticism made of former prime minister, Boris Johnson, by former Government adviser, Dominic Cummings.
The Bank of England said on Thursday (August 3) it expects the Government to meet its promise to halve inflation by the end of the year.
Mr Hunt said: “Any rise in interest rates is a worry for families with mortgages, for businesses with loans… What the Bank of England governor is saying is we have a plan that is bringing down inflation, solidly, robustly and consistently.
“So the plan is working, but what we have to do as a Government is that we stick to that plan, we don’t veer around like a shopping trolley.”
Shadow chancellor Rachel Reeves labelled the latest rise in interest rates as a “hammer blow for working people” which didn’t need to happen.
Ms Reeves, writing in the Daily Mirror, said the Government was “managing decline rather than getting us moving”.
She wrote: “This rise – a hammer blow for working people – did not have to happen. The Tories crashed the economy with last September’s disastrous mini-Budget and left you paying the price.”
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Prime Minister Rishi Sunak, who is on holiday in California, admitted a lot of people are worried about the rise in interest rates.
He tweeted: “The alternative would make inflation far worse, so what you buy becomes more expensive and what you save, worth less.”
In a video he posted on Twitter, he described inflation as “the single biggest challenge” facing Britain and said halving it was his top priority this year.
Bank of England governor Andrew Bailey said it was not “time to declare it’s all over” on rate rises.
Economists had thought the latest hike could be one of the last, with some predicting a pause in rates after one more rise. But Mr Bailey insisted it is too soon to say when interest rates will begin to fall.
He said: “We’ve had quite contrasting evidence in the last couple of months or so.
“So I don’t think it is time to declare it’s all over and we’re sort of sticking where we are for the moment, because I think that really does sit at odds with the fact that we’ve had some very big pieces of news and they are not going the same direction.”
Furthermore, the Bank’s rate-setting Monetary Policy Committee said in its report that it will keep interest rates “sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target”.
It signals rates could stick around the current levels for longer than was previously thought.
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