Hunt’s honesty on a recession to tackle inflation is refreshing

The government has been claiming since the start of the year that it’s on a mission to ‘halve inflation’ – despite having virtually no control in this area. Still, this week Rishi Sunak ramped up the narrative when the latest set of data showed the headline rate falling from 10.1 per cent on the year in March to 8.7 per cent in April. It was false optimism. And it’s backfired.

Markets quickly saw past the headline rate and looked at all the worrying news underlying it: mainly that core inflation actually rose, nearing 7 per cent on the year in April. Borrowing costs have spiked since then: 10-year gilt yields hit 4.37 per cent yesterday, now the highest in the G7. This hasn’t happened since the financial crash. Despite a little bit of fluctuation today, not much has changed. 

Unlike last autumn, when markets were reacting to the government’s fiscal policy, this week’s spike is focused on failures in the Bank of England’s monetary policy: mainly the inability to get inflation under control.