UK Chancellor Jeremy Hunt has voiced his readiness to confront a potential recession if it results in taming the inflation beast. In a candid conversation with Sky News, Hunt affirmed his full endorsement of the Bank of England's potential decision to hike interest rates, possibly up to 5.5%, in a bid to combat soaring prices.

When probed about his comfort level with the Bank of England implementing necessary measures to curb inflation, even if it might trigger a recession, Hunt responded with a resounding yes. He underscored that inflation is a destabilizing factor and for the economy to flourish and grow, and to minimize the risk of recession, it is imperative to stand behind the Bank of England in their challenging decisions.

Hunt also drew attention to his duty as Chancellor to ensure fiscal equilibrium, demonstrating to global markets that Britain is a nation that meets its financial obligations. This implies aligning the Bank of England's monetary policy with the Chancellor's fiscal policy.

These remarks were made in the aftermath of a significant shift in market expectations for the zenith of UK interest rates, following higher-than-anticipated CPI inflation data this week. The expected peak for UK rates, which was marginally above 4.75% last week, surged to 5.5% after Wednesday's statistics. This marked the most considerable shift in interest rate expectations since 2008, excluding the fluctuations after the mini-budget last autumn.

Earlier in January, Prime Minister Rishi Sunak committed to halving inflation this year, which effectively translates to reducing it to just above 5% by the end of 2023. The Bank of England's forecasts earlier this week suggested he would narrowly succeed. However, the latest inflation data, which is significantly higher than the Bank's forecast trajectory, may cause this commitment to be missed.

Despite this, the Prime Minister also committed to economic growth. While the International Monetary Fund stated this week that the UK would dodge a recession, economists believe it's now plausible that Britain might see gross domestic product (GDP) contract for two quarters, which is the technical definition of a recession.

Hunt concluded by stating that managing inflation and recession is not a zero-sum game. The only path to sustainable growth, he argued, is to deflate inflation.

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