Former chancellor Lord Lamont calls for interest rate hike as inflation rises by 3%

Former chancellor Lord Lamont has called for an interest rate hike and changes to the Bank of England‘s quantitative easing policy to ease the risks from inflation.

The ex-Tory MP for Kingston-upon Thames warned inflation has risen by three per cent in the UK and that this is ‘well above the targets set by central banks’.

He also estimated that around £40billion is being spent per year solely on ‘paying interest on Government debt’.

Speaking this morning, Lord Lamont told BBC Radio 4’s Today programme: ‘I would personally be in favour of an interest rate (rise) now but also the Bank of England ought to be considering ending, scaling back, its quantitative easing.’

His comments some amid mounting signs of rampant inflation in the UK, with energy prices rocketing, the recent fuel shortage leading to surging costs on forecourts and prices rising more generally in the economy.  

The latest Office for National Statistics (ONS) survey showed that 10 per cent of businesses reported increasing the price of goods and services in early September – up from eight per cent in mid-August and four per cent in late December. 

Former chancellor Lord Lamont (pictured above), 79, warned inflation has risen by three per cent in the UK and that this is 'well above the targets set by central banks'

Former chancellor Lord Lamont (pictured above), 79, warned inflation has risen by three per cent in the UK and that this is 'well above the targets set by central banks'

Former chancellor Lord Lamont (pictured above), 79, warned inflation has risen by three per cent in the UK and that this is ‘well above the targets set by central banks’

It comes amid mounting signs of rampant inflation in the UK, with energy prices rocketing, the recent fuel shortage leading to surging costs on forecourts and prices rising more generally

It comes amid mounting signs of rampant inflation in the UK, with energy prices rocketing, the recent fuel shortage leading to surging costs on forecourts and prices rising more generally

It comes amid mounting signs of rampant inflation in the UK, with energy prices rocketing, the recent fuel shortage leading to surging costs on forecourts and prices rising more generally

Lord Lamont, 79, said: ‘Today there are signs of rising inflation, not just in the UK, three per cent, in the US it’s five per cent and forecast to go higher, in the Eurozone it is three per cent. 

‘These rates of inflation are well above the targets set by central banks.

‘The danger is that inflation becomes embedded, it results in wage claims, public sector wage claims, and it becomes extremely difficult to reverse, and the longer you leave it in terms of putting up interest rates the more interest rates may have to go up and the faster they may have to go up.

‘Central bankers, not just Bank of England, believe the current inflation is transient. I can understand why they think it’s transient but there is risk of it getting embedded.’ 

He added: ‘The Bank of England like other central banks around the world has been buying in its own debt so the Government in a sense has been financing itself.

‘This carries a risk of inflation in many people’s eyes, it also carries a risk of a loss of credibility because it might look as though the bank is financing Government expenditure rather than just keeping interest rates down and smoothing the markets.’

The ex-Chancellor continued: ‘There is a fear that the Bank of England, and I’m not saying that I subscribe to this, but some people have the fear that the Bank of England might be pressurised not to put interest rates up because that could be very difficult for the Government.

‘The maturity period on Government debts has shortened, there’s a lot of inflation-linked debt around, which means that when inflation goes up, the interest that the Government has to pay is higher and greater too. We’re spending something like £40billion a year just on paying interest on Government debt.’

Lord Lamont also warned the Government’s policy of calling for wages to go up could drive if the boost is not accompanied by increased productivity.

He said: ‘Wages going up because of increased productivity… is a good thing.

The ex-Tory MP for Kingston-upon Thames said: 'Some people have the fear that the Bank of England might be pressurised not to put interest rates up because that could be very difficult for the Government' (file photo of the Bank of England)

The ex-Tory MP for Kingston-upon Thames said: 'Some people have the fear that the Bank of England might be pressurised not to put interest rates up because that could be very difficult for the Government' (file photo of the Bank of England)

The ex-Tory MP for Kingston-upon Thames said: ‘Some people have the fear that the Bank of England might be pressurised not to put interest rates up because that could be very difficult for the Government’ (file photo of the Bank of England)

‘Just pushing up wages by themselves, calling for them to go up, will not increase productivity itself and could become inflationary.’

Firms are increasingly passing on soaring costs to consumers as the supply chain crisis wreaks havoc across the economy, with official figures revealing that one in 10 firms has hiked prices.

The ONS said its latest business survey showed nearly a third (29) of companies have seen a higher-than-normal increase in the cost of materials, goods and services – with construction, services and manufacturing firms the worst hit.

The data showed that, of these, nearly a quarter (23 per cent) were retailers across the wholesale and consumer-facing sectors and 25 per cent in the manufacturing industry. 

It follows wholesale gas prices surging to a record high on Wednesday, although they dropped back after Russian President Vladimir Putin said the country would stabilise the market.

The surge in wholesale gas prices has already forced many small UK suppliers out of business

The surge in wholesale gas prices has already forced many small UK suppliers out of business

The surge in wholesale gas prices has already forced many small UK suppliers out of business

The latest Office for National Statistics (ONS) survey showed that 10 per cent of businesses reported increasing the price of goods and services in early September (file photo)

The latest Office for National Statistics (ONS) survey showed that 10 per cent of businesses reported increasing the price of goods and services in early September (file photo)

The latest Office for National Statistics (ONS) survey showed that 10 per cent of businesses reported increasing the price of goods and services in early September (file photo)

Sectors from car retailing and toilet paper production to high street fashion have warned over price hikes.

In the retail sector, the likes of Next and Hotel Chocolat have recently said they are putting up prices in the face of cost pressures.

The ONS survey also showed that businesses are struggling to fill vacancies as staff shortages add to the pricing woes.

It found that 41 per cent of firms with 10 employees or more reported vacancies being more difficult to fill in the last month compared with normal expectations for this time of year.

Across all firms finding it harder to recruit, 18 per cent said there has been a reduced number of EU applicants.

More than half (53 per cent) said it was due to a lack of qualified applicants for the roles on offer.

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