Recession risk 'real' as Rishi Sunak says 2024 to be better for Brits

Recession risk is ‘very real’ despite Rishi Sunak claiming struggling Brits will feel better off next year – as the PM bats away Tory demands for tax cuts

Brits have been warned of a ‘very real’ recession risk despite Rishi Sunak insisting people will feel better off next year.

The PM reiterated that tackling inflation remains his top priority as economists highlighted the danger that further interest rate hikes could send UK plc into reverse.

Mr Sunak also batted away Tory demands for early tax cuts to ease the pressure on struggling families, saying it would not be the responsible thing to do.  

The intervention, in an interview with The Times, came after it emerged that inflation had fallen again to 6.8 per cent in July, from 7.9 per cent the previous month.

However, that is still more than triple the Bank of England’s target, and there were worrying signs with core inflation – excluding energy and food prices – staying stubbornly high.     

Analysts are expecting Threadneedle Street to push ahead with more rate increases, despite the pain being inflicted on mortgage-payers.

Rishi Sunak (pictured on a visit to Leicester yesterday) reiterated that tackling inflation remains his top priority as economists highlighted the danger that further interest rate hikes could send UK plc into reverse

It emerged yesterday that inflation fell again to 6.8 per cent in July, from 7.9 per cent the previous month – but there were also worrying signs of ‘stickiness’ in prices

Markets are pricing in an increase from 5.25 per cent to 5.5 per cent next month, and a potential peak of 6 per cent by the start of next year.

The IPPR think-tank has raised concerns that level could drive the economy into recession.

Asked if people would feel better off in a year’s time – when the country will be on the cusp of a general election – Mr Sunak said: ‘That’s my job, to make sure that not just happens but they feel that that’s happening. You can start to see now that there is a prospect of wages growing faster than inflation going forward.

‘I’m really proud of our country and what makes us special. I’m really optimistic about the future.

‘We’ve got a challenge right now to overcome but I’m entirely confident we will do it. Is it taking a bit longer than anyone would like? Of course it is, but we’re making progress.’

Mr Sunak also said the ‘best thing for the country is to bring down inflation’, adding: ‘That means being disciplined on borrowing, disciplined on spending, whether that is spending on lots of things — public sector pay — or indeed unfunded tax cuts.

‘All of that is part of being disciplined with the nation’s finances.’

George Bibb, head of the IPPR’s centre for economic justice, said: ‘It’s good news that headline inflation is lower, especially with energy bills coming down, but there is a very real risk that a recession may soon overtake price rises as the main economic concern.

‘Other countries have brought inflation under control quicker than in the UK, with more support for households and workers avoiding unnecessary pain.’

Mr Sunak pledged at the start of the year to cut inflation in half, from a level of 10.7 per cent, by the end of 2023.

Economists have most recently forecast that the Government will just achieve this, with the Bank of England currently projecting inflation to be around 4.9 per cent in the last three months of the year.

The latest inflation reading was marginally above expectations, with analysts having predicted a reading of 6.7 per cent for the month.

ONS deputy director of prices Matthew Corder said: ‘Inflation slowed markedly for the second consecutive month, driven by falls in the price of gas and electricity as the reduction in the energy price cap came into effect.

‘Although remaining high, food price inflation has also eased again, particularly for milk, bread and cereal.

‘Core inflation was unchanged in July, with the falling cost of goods offset by higher service prices.’

The ONS said lower energy prices, which have slumped after volatility sparked by the Russian invasion of Ukraine, were a key driver in the slowdown in inflation.

From the start of July, the average price for each unit of electricity that someone uses was slashed to 30p per unit, while gas prices fell to 8p per unit, meaning the average annual energy bill for a household dropped to £2,074 from the capped rate of £2,500.

Gas prices declined by more than 25 per cent in July against the previous month due to the cap change, while electricity prices were 8.6 per cent lower.

Soaring food inflation also slowed down markedly, contributing to the reduction in the overall inflation rate, but remains near historically high levels.

Food prices increased by 14.9 per cent in July against the same month last year, easing back from 17.3 per cent growth for June.

The fresh inflation data comes a day after the ONS revealed that wages grew at a record pace over the three months to June, with regular pay growth, which excludes bonuses, reaching 7.8 per cent compared with a year earlier.

The Bank of England has already hiked interest rates to 5.25 per cent, a level last seen in 2008 during the financial crisis

Nevertheless, wages were still 0.6 per cent lower once inflation for the period was taken into account.

Martin McTague, national chairman of the Federation of Small Businesses (FSB), said: ‘While a drop in inflation provides some comfort, today’s figures show less of a drop in inflation than hoped for, and will renew fears of a wage-price spiral, and of yet more base rate hikes in future.

‘The worry now is that rising wages ignite a fresh wave of inflation in September, which will threaten the momentum from June’s GDP growth.’

The Retail Prices Index slowed to 9 per cent from 10.7 per cent in the previous month. 

The figure has previously been used to calculate annual train fare increases but the Government has confirmed that the next increase will be below this RPI rate.

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