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Interest rates: Jeremy Hunt hints at Treasury backing for further rise

interest rates LONDON, UNITED KINGDOM - OCTOBER 25: Chancellor of the Exchequer Jeremy Hunt arrives in Downing Street for the final cabinet meeting chaired by Prime Minister Liz Truss in London, United Kingdom on October 25, 2022. (Photo by Wiktor Szymanowicz/Anadolu Agency via Getty Images)
UK chancellor Jeremy Hunt puts rising inflation as chief concern for UK economy ahead of Bank of England interest rates decision. Photo: Wiktor Szymanowicz/Anadolu Agency via Getty (Anadolu Agency via Getty Images)

UK chancellor Jeremy Hunt hinted that even though interest rates are one of the reported causes of the current instability in the banking sector, inflation remains chief concern for the economy.

"The first priority is to halve inflation," Hunt told the parliamentary Economic Affairs committee meeting on Tuesday.

"Monetary and fiscal policy must point in the same direction, and we need to increase growth in a way that does not raise inflation, it is possible to grow the economy in a none inflationary way," Hunt said.

His comments come ahead of the Monetary Policy Committee meeting on Thursday when the Bank of England (BoE) will make its call on UK interest rates, currently at 4%.

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Hunt, however, agreed that the speed of interest rate rises over the last months was "the root cause of the current instability in markets".

It has been reported that interest rate rises by central banks have resulted in falling prices for the bonds in which collapsed Silicon Valley Bank (SVB) had been investing in, leading to fears that more banks face similar liquidity problems.

However, Hunt argued that inflation was still the primary macro-economic concern for the UK.

Read more: Wall Street higher ahead of Fed meeting as FTSE holds on to gains

"We need to bring inflation down, its dangerously high, over 10%. It is still the case that the first priority is to half inflation.

"We will try and reduce inflation in a way that maintains stability. But, we should remember that inflation in itself is also destabilising," Hunt said.

Bank of England survey expects interest rates to rise

The chancellor's hints are in line with the forecasts made by a majority of UK households in a recent BoE survey.

The survey found that around 58% anticipate interest rates to rise over the next year, with only 21% expecting rates to go down.

Still, this is lower than December when 74% expected interest rates to climb.

Read more: Bank of England survey shows most expect interest rates to rise

Most UK households also think that hiking interest rates is not good for the economy, with 33% of respondents saying that interest rates should "go down". Only 16% said rates “should go up” when asked about what would be “best for the economy”.

The majority also expressed that they have seen cost rise at every turn. Three quarters (75%) said that interest rates on things such as mortgages, bank loans and savings had risen over the past 12 months.

Banking crisis escalates

After last week's bankruptcy of Silicon Valley Bank, Credit Suisse (CS) also fell into distress. On Sunday Swiss-based multinational investment bank UBS (UBS) announced it would buy Credit Suisse for $3.25bn (£2.7bn).

Swiss finance minister Karin Keller-Sutter said: "This is no bailout. This is a commercial solution because UBS is taking over Credit Suisse."

Read more: Bank of England policymaker calls for holding interest rates

UBS chairman Colm Kelleher said: "It's a historic day in Switzerland, and a day frankly, we hoped, would not come.

"I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders."

The UK arm of Silicon Valley Bank was purchased by HSBC (HSBA.L) for £1.

Watch: How does inflation affect interest rates?

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