Bank of England must create recession to cushion inflation, says UK chancellor advisor

By Aysu Bicer

LONDON (AA) - The Bank of England must create recession to cushion inflation, according to a member of UK Chancellor Jeremy Hunt's economic advisory council.

Speaking on BBC Radio 4's Today program on Wednesday, Karen Ward, also the chief market strategist for Europe, the Middle East and Africa at JP Morgan, stressed the emergence of a potential price-wage spiral, necessitating immediate action.

With inflation stubbornly high at 8.7% in May, Ward said that the central bank must address this growing concern and prevent the escalation of a price-wage spiral, which could exacerbate the inflationary pressures.

"The difficulty for the Bank of England – I mean, no one envies their job at the moment – is they have to therefore create a recession," he said.

"They have to create uncertainty and frailty because it's only when companies feel nervous about the future that they will think, 'Well, maybe I won't put through that price rise,' or workers, when they're a little bit less confident about their job, think, 'Oh, I won't push my boss for that higher pay.' It's that weakness in activity which eventually gets rid of inflation."

Annual inflation in the UK on Wednesday remained unchanged at 8.7%, above market expectations of 8.4%, intensifying pressure on the Bank of England to raise interest rates.

The core inflation rate, which excludes volatile items such as energy, food, alcohol and tobacco, rose to 7.1%, the highest since March 1992.

The Bank of England (BoE) is seen guaranteeing a 25 basis point interest rate hike in tomorrow's monetary policy committee meeting due to the persistent inflation in the country.

The latest data has also accelerated the possibility of a 50 basis point increase.

The bank has raised interest rates 12 times in a row since December 2021, bringing the policy rate to 4.5% last month.