The Chancellor of the Exchequer has emphasised his confidence in the medium and long-term prospects for the UK economy, despite warnings of weakness in the pound.
Speaking to the Treasury Select Committee today (June 6), Rishi Sunak said: “I have confidence in the medium-term outlook for the economy."
Sunak was responding to the committee chair, Mel Stride, who asked whether the Chancellor was concerned about the current weakness of the pound.
Sterling has slumped against the dollar and euro in recent months, as the cost of living crisis and possible recession has hit investor confidence in the currency.
Stride referenced a recent report by the Bank of America that showed a steep drop in sentiment towards sterling in an investor survey.
Sunak said: “No...in the short term, obviously we are experiencing high inflation, we are not alone in that…although what is happening here is predominantly due to global shocks, [it is] not exclusively.”
Areas of concern
Sunak highlighted the three forces at play in the current cost of living crisis.
The first is the high price of energy, experienced across Europe, as well as the tight labour market.
The second is inflation expectations, which Sunak says he watches “carefully”, and is wanting to make sure they do not increase over the medium term.
The third is that core inflation is elevated and broad-based, and not just focused on food and energy costs.
Sunak said: “I am confident we have the tools and the determination to get inflation down over time, whether that is fiscal policy, strong independent monetary policy, or supply-side reform.
“[Those three tools] will reduce inflation over time and I want people to be reassured that this is the case, and in the short-term I think the support we have provided will make a meaningful difference.”
Cost of living package
Sunak also hit back at criticism that the recently announced cost of living package will further fuel inflation.
The £15bn cost of living support package includes a one-off £650 payment to low-income households, a doubling of the discount to energy bills and a £500mn increase to the household support funds.
The package will be funded by the energy profits levy, a 25 per cent tax on the profits of oil and gas companies.
Sunak said: “We’ve put what I think is a careful and well-constructed package together which will minimise the risk of inflation.
“These are necessity expenditures as opposed to discretionary ones, what we don’t want to be doing is fueling further excess discretionary spending which would make the situation potentially worse.”