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Jeremy Hunt backs interest rate hikes even if they cause recession; UK retail sales jump - as it happened

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Chancellor Jeremy Hunt comfortable with recession if it brings down inflation

Chancellor Jeremy Hunt has pledged to support the Bank of England's decisions on interest rates, even if rising mortgage costs push the UK into a recession.

Hunt told Sky News there could be no trade-off between cutting inflation and the risk of provoking a recession, arguing that the "only path to sustainable growth" is to bring down the high prices behind the cost-of-living crisis.

Asked by Sky News whether he was comfortable with the BoE doing whatever was needed to bring down inflation, even if that could cause a recession, Hunt said:

"Yes, because in the end, inflation is a source of instability."

"If we want to have prosperity, if we want to grow the economy, if we want to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take."

The government has pledged to halve inflation by the end of the year, which would mean CPI inflation dropping to 5% from over 10% at the start of 2023. That target looks more stretching, after inflation fell by less than expected in April.

When pressed about the danger that interest rate hikes cause a recession, Hunt stuck to his guns, saying:

"We will deliver this task and we will make sure that the government plays its part, the Bank of England plays its part. But it is not a trade-off between tackling inflation and recession. In the end the only path to sustainable growth is to bring down inflation."

Just three days ago, Hunt was celebrating an upgraded growth forecast from the IMF, which no longer expects the UK to drop into recession this year.

That, though, was before Wednesday's inflation data put more pressure on the Bank of England to tighten monetary policy.

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Jeremy Hunt said he would back further interest rate rises by the Bank of England, even if they risk plunging the UK into recession, in order to combat soaring inflation.

When asked whether he was comfortable with the central bank doing whatever was needed to bring down inflation, even if that could cause a recession, the chancellor told Sky News:

"Yes, because in the end, inflation is a source of instability. And if we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take."

Exclusive: the Chancellor tells @EdConwaySky he's comfortable with Britain being plunged into recession if that's what it takes to bring inflation down

Hunt backs the Bank to raise rates after higher than expected inflation figures this week

Watch: pic.twitter.com/TheVfGhDjE

— Tom Boadle (@TomBoadle) May 26, 2023

Hunt's comments came as City investors braced for several more increases in UK interest rates.

The Bank of England is now expected to raise Base Rate to 5.5% by the end of this year, from 4.5% today, after inflation fell less than expected in April.

Nationwide, Britain's biggest building society, increased some of its mortgage rates for new borrowing today, saying this will ensure its rates "remain sustainable" in the current economic environment.

The rate increases, of up to 0.45 percentage points, only affect customers taking out a new mortgage deal.

Economists fear the UK could fall into recession by the end of 2023, or early in 2024, as high interest rates hit economic activity.

Luke Hickmore, investment director at asset manager Abrdn, told Radio 4's Today Programme:

I don't think it'll be a really hard recession, but we will feel it, and I think people's incomes are going to come under a lot of pressure from those higher mortgage rates.

Despite rising inflation, consumers spent more in the shops last month.

Retail sales across Britain rebounded in April, after bad weather hit spending in March, with consumers bying 0.5% more during the month.

In other news…

The start of the May half-term holiday for many schools will result in "hectic" roads and the most flights departing the UK since before the pandemic, according to industry estimates.

Asos is raising £80m from shareholders and borrowing £275m from Bantry Bay Capital, the specialist lender which recently bailed out troubled retailers Superdry and Matalan, as it struggles to secure a turnaround after falling nearly £300m into the red.

The Boots boss, Seb James, more than doubled his pay to £3.8m last year after the chemist chain tripled profits as pandemic restrictions eased.

And UK ice-cream sellers are complaining that the quality of the "Cadbury 99 flake" - has deteriorated since production was moved to Egypt.

Ice-cream sellers say they are being asked to pay through the nose for a box of shards. "You can't give someone a 99 with a broken flake," John Taylor, the owner of C&M Creamery Ices, told the BBC.

"It's embarrassing for an ice-cream man."

Hopefully you can do your own research on this! Have a lovely Bank Holiday weekend. GW

Could Jeremy Hunt's comments today be one for the history books?

Reading and seeing the comments by Jeremy Hunt about being "comfortable" with a recession, it struck me that this could be the 2020s version Callaghan's "crisis? What crisis?" (Which he might not even have said IIRC).https://t.co/IXdRgCD8CR

— Francis Tusa (@FTusa284) May 26, 2023

Accenture cutting up to 500 UK jobs

Sarah Butler

Advisory firm Accenture is planning to make up to 500 redundancies in the UK, including senior managers, as it adjusts to slowing demand for its services as businesses look to cut costs.

The group, which employs more than 14,000 people in the UK, told workers that the job cuts were related to changing patterns in client behaviour in a period of "extraordinary turbulence".

About 3.5% of the group's UK workforce are set to be affected - or about 500 people - including managing directors, corporate support staff and others.

Accenture said back in March that it planned to make about 19,000 people redundant globally, or 2.5% of its workforce worldwide, as part of efforts to "streamline our operations and transform our non-billable corporate functions to reduce costs."

Gwyn Topham

Across the UK, schools are breaking up for the start of the May half-term holidays.

People are being warned to expect "hectic" roads and the most flights departing the UK since before the pandemic, according to industry estimates.

About 19m car journeys for leisure are expected on Britain's roads over the next four days, and more than 3,000 planes are scheduled to take off on Friday.

The RAC is preparing for the busiest late-May bank holiday weekend for motoring since 2019, with traffic likely to peak on Friday afternoon when leisure trips and commuting coincide.

Fine weather is forecast for the UK-wide three-day weekend - which coincides with the start of the half-term break for most schools in England and Wales - potentially bringing more people out to the coast and countryside.

Back at Heathrow, British Airways' flight cancellations due to an IT failure have reached 175 over the last two days.

The disruption has hit the half-term holiday plans of thousands of families, on what was expected to be the busiest day at UK airports since the Covid-19 pandemic.

Aviation analytics company Cirium said 83 British Airways flights due to operate on Friday were cancelled, in addition to 92 flights on Thursday.

BREAKING: British Airways has cancelled 80 flights today, including both departures and arrivals.

It comes after the airline axed more than 50 departures and 20 arrivals on Thursday due to issues with its IT system.

Latest: https://t.co/AU2nY1Zrkb

📺 Sky 501, Virgin 602 and YT pic.twitter.com/6VBiUDqPCQ

— Sky News (@SkyNews) May 26, 2023

That means more than 20,000 passengers' journeys were axed - although some will have been able to rebook to an alternative flight with BA or another carrier.

UK inflation is "very much public enemy number one", says Bloomberg's John Stepek.

Wednesday's higher-than-expected inflation reading of 8.7% means there's now a chance the government's target of halving inflation this year could be missed, he writes, adding:

A lot of pressure is now on both the Bank and the government, which has promised to cut the inflation rate in half this year. At the time, this did not look very demanding at all.

More here.

After this week's shocking price data, it's clear that inflation is UK public enemy number one. Chancellor Jeremy Hunt has even said he'd put up with a recession if that's what it takes to ease pricing pressure. The BOE will be listening https://t.co/FZR8AW2dVS pic.twitter.com/brBMhnJBAr

— Zoe Schneeweiss (@ZSchneeweiss) May 26, 2023

Hunt's insistance that he's be comfortable with high interest rates pushing the UK into recession could also embolden the Bank of England to keep hiking. As Stepek says, Jeremy Hunt Should Be Careful What He Wishes For…

Back in the US, consumer confidence has taken a knock this month, as Americans grew more pessimistic about the economic outlook.

The University of Michigan's Index of Consumer Sentiment has come in at 59.2 for May, down from April's 63.5, but better than the preliminary reading of 57.7 earlier this month.

Fears of a US recession hit confidence, as Surveys of Consumers director Joanne Hsu explains:

Consumer sentiment slid 7% amid worries about the path of the economy, erasing nearly half of the gains achieved after the all-time historic low from last June.

This decline mirrors the 2011 debt ceiling crisis, during which sentiment also plunged. This month, sentiment fell severely for consumers in the West and those with middle incomes.

The year-ahead economic outlook plummeted 17% from last month. Long-run expectations plunged by 13% as well, indicating that consumers are concerned that any recession to come may cause lasting pain.

Americans' year-ahead inflation expectations dropped to 4.2% in May after spiking to 4.6% in April.

Five-year-ahead inflation expectations in the University of Michigan consumer survey ticked up to 3.1% in May from 3% in April, but this was down from the 3.2% reported for May in the preliminary survey two weeks ago (which would have been a 12-year high) pic.twitter.com/w2YSYn9qFb

— Nick Timiraos (@NickTimiraos) May 26, 2023

Liberal Democrat deputy leader Daisy Cooper has also pinned the blame for any UK recession on the government, saying:

"This would be a recession made in Downing Street. Rishi Sunak's promise to grow the economy has been left in tatters.

"This Government's failure to cut inflation is sending mortgage rates spiralling as the Conservative economic chaos continues."

Green Party criticises Hunt over recession comments

Jeremy Hunt's comments about being comfortable with Britain being plunged into recession if that's what it takes to bring down inflation has been heavily criticised by the UK's Green Party.

Green Party finance and economy spokesperson Molly Scott Cato says Hunt was wrong to argue that a recession would be a price worth paying.

"It's easy for a millionaire Chancellor to advocate pushing people into losing their jobs and homes because failed Tory economic policies cannot deal with the cost-of-living crisis.

"However, it is totally unacceptable for people on the receiving end of falling wages and rising prices to be told that they are the problem.

"An effective and compassionate Chancellor would be looking for ways to support the economy without fuelling inflation. The most obvious would be to pay public sector workers in line with inflation. Since their output is not old in a market it would barely add to inflation.

"This could be funded by taxing the super-rich, whose consumption does contribute to inflation. Profiteering companies, financial speculators and the wealthy need to bear the burden of dealing with a crisis that is rooted in misguided ideology and Tory unfairness."

Inflation is proving sticky across the Atlantic too.

New data just released shows that the core PCE price index - the Federal Reserve's favourite inflation measure - rose last month.

The annual core PCE index, which strips out US food and energy costs, rose to 4.7% in April, up from 4.6% and higher than expected. That could spur the Fed to keep interest rates higher for longer.

OIS now has just 9bps of Fed cuts priced by year-end...was 16bps before PCE, 45bps this time last wk, 68bps a month ago...huge hawkish repricing...

— Michael Brown (@MrMBrown) May 26, 2023

This has pulled the pound down a little against the US dollar, but sterling is still up half a cent today at $1.2366, having hit a near seven-week low yesterday.

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