Can the government claim credit for halving inflation?

'Why do you and Rishi Sunak claim credit?' Jeremy Hunt faces a question from a viewer on the Sunday with Laura Kuenssberg programe. (BBC)
'Why do you and Rishi Sunak claim credit?' Jeremy Hunt faces a question from a viewer on the Sunday with Laura Kuenssberg programme. (BBC)

What's happening? This week, inflation fell to its lowest rate in two years – and Rishi Sunak was quick to take credit.

The latest Office for National Statistics (ONS) figures revealed price rises were 4.6% in October, down from 11.1% a year before.

In January, when inflation stood at 10.1%, Sunak made halving it by the end of the year one of his "five key priorities for 2023".

And within minutes of the ONS confirming this had become a reality, Sunak released a statement reading: "Today, we have delivered on that pledge."

But when the Bank of England is responsible for bringing down inflation, and the price falls have largely been driven by global energy prices going down, why is the government taking credit?

This was the question put to chancellor Jeremy Hunt when he appeared on the BBC's Sunday with Laura Kuenssberg programme ahead of this week's autumn statement. Viewer Jeffrey Gill asked Hunt: "Why do you and Rishi Sunak claim credit for this? You must also be responsible for increasing inflation to over 10%?"

Here, Yahoo News UK looks at the differing perspectives.

What have economists said?

LONDON, ENGLAND, JANUARY 04: Prime Minister Rishi Sunak speaks during his first major domestic speech of the year at Plexal, Queen Elizabeth Olympic Park on January 4, 2023 in London, England. (Photo by Stefan Rousseau - WPA Pool/Getty Images)
Rishi Sunak delivers a speech on 4 January setting out his five priorities for 2023. (Getty Images) (WPA Pool via Getty Images)

Leading economists have been clear it is external factors – falling global energy prices and rising interest rates – that have driven inflation down to 4.6%.

ONS chief economist Grant Fitzner, commenting on the organisation's own inflation figures this week, told the BBC: "Inflation fell substantially on the month as last year's steep rise in energy costs has been followed by a small reduction in the [Ofgem] energy price cap this year."

Paul Johnson, director of the Institute for Fiscal Studies, said: "The job of cutting inflation is for the Bank of England not the government. So it was always inappropriate for the government to have a target/pledge to halve inflation.

"That's not their job and not something over which they have a lot of control.

"It was an opportunistic pledge given the fact that [the] Bank was, in January, forecasting that inflation would easily halve."

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, acknowledged the UK has "turned the corner"... but added "this owes more to the downward pressure on prices from falling energy costs and rising interest rates [currently 5.25%, a 15-year high] than any government action".

Higher interest rates, as per the Bank, "make it more expensive for people to borrow money and encourage them to save. That means that overall, they will tend to spend less. If, people on the whole, spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation."

What has the government said?

Chancellor Jeremy Hunt speaks to the media on Sunday. (PA)
Chancellor Jeremy Hunt speaks to the media on Sunday. (PA) (James Manning/PA Wire)

Hunt, addressing the question about taking credit on the Sunday with Laura Kuenssberg programme, insisted the government has "played its part" with "eye-watering decisions" on tax and government spending.

He said: "We know why inflation went up: after the energy crisis, the biggest energy shock that we had since the Second World War.

"But I think it's worth listening to someone like the governor of the Bank of England [Andrew Bailey] who says if you're going to bring inflation down – and it was over 11% when Rishi Sunak became prime minister and I became chancellor – then the Bank of England and the government need to work together.

"The Bank of England's job is on interest rates which they do independently. What the government does is make sure we have borrowing and debt under control.

"I had to take some eye-watering decisions to get borrowing under control. It was only because of those very difficult decisions that I took a year ago on both tax and spending... that the government was able to play its part in helping the Bank of England bring inflation down."

What is set to happen with inflation?

People walk by the Bank of England building (L) and Stock Exchange building (R), in the financial district, central London, on November 2, 2023. (Photo by HENRY NICHOLLS / AFP) (Photo by HENRY NICHOLLS/AFP via Getty Images)
The Bank of England's inflation target is 2%. (AFP via Getty Images) (HENRY NICHOLLS via Getty Images)

Inflation is expected to continue easing, albeit at a more gradual pace than seen in October. Experts at the Pantheon Macroeconomics consultancy have forecasted a fall to 3.5% by March.

But that is still a long way from the Bank of England's government-mandated 2% target. It means Sunak and Hunt are still under pressure.

Bank governor Bailey also warned last week there is "no room for complacency" as it predicted inflation will not fall back to this target until towards the end of 2025.

This path may not be smooth, with rising costs at the petrol pumps threatening to push up inflation and the energy market still vulnerable to price shocks.

Meanwhile, households are set to learn their energy bills will soon rise again as hopes for relief from the cost-of-living crisis are put on hold.

Ofgem will announce its latest price cap on Thursday, with energy consultancy Cornwall Insight predicting it will increase from the current £1,834 for a typical dual fuel household to £1,931 – a 5% jump that will take effect from January to March.

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