Former Chancellor Lord Lamont called for higher interest rates and changes to the Bank of England’s quantitative easing policy to mitigate inflation risks.
The former Tory MP for Kingston-upon Thames warned that inflation had risen by 3% in the UK and that this was “well above the targets set by central banks”.
He also estimated that around £ 40 billion is spent per year just to “pay interest on the public debt”.
The Bank of England has predicted that inflation will exceed four percent by the end of the year, as its monetary policy committee keeps interest rates at 0.1 percent.
Speaking this morning, Lord Lamont told BBC Radio 4’s Today program: “I would personally be in favor of a (hike) interest rate now, but the Bank of England should also consider ending , reduce, its quantitative easing. “
His comments were certain amid growing signs of runaway inflation in the UK, with soaring energy prices, the recent fuel shortage causing costs in forecourt to spike and prices generally rising in the economy. .
The latest Office for National Statistics (ONS) survey showed that 10% of businesses said they had increased the price of goods and services in early September, up from 8% in mid-August and 4% at the end of December.
Former Chancellor Lord Lamont (pictured above), 79, warned that inflation had risen by 3% in the UK and that this was “well above targets set by central banks”.
It comes amid growing signs of runaway inflation in the UK, with soaring energy prices, the recent fuel shortage causing costs to soar on forecourt and prices to rise more generally.
Lord Lamont, 79, said: “Today there are signs of rising inflation, not just in the UK three percent, in the US it is five percent and is expected to increase, in the euro area it is three percent.
“These inflation rates are well above the targets set by central banks.
“The danger is that inflation will take hold, lead to wage demands, wage demands in the public sector, and become extremely difficult to reverse, and the more you leave it in terms of rising rates. interest, the more interest rates may have to rise, the faster they may have to rise.
“Central bankers, and not just the Bank of England, believe current inflation is transitory. I can understand why they think it is transient, but there is a risk that it will become embedded.
He added: “The Bank of England, like other central banks around the world, bought its own debt, so the government kind of funded itself.
“This carries a risk of inflation in the eyes of many people, it also carries a risk of loss of credibility as it might appear that the bank is financing government spending rather than just keeping interest rates low and smoothing out markets. “
Prime Minister Boris Johnson has sought this week to downplay the prospect that rising inflation could reverse wage increases as he places his long-term hopes on the shift to a high-wage, highly-skilled economy after the Brexit.
But business leaders have been among those who have warned that raising wages without increasing productivity levels could lead to inflation and lead to higher costs for consumers.
The ex-chancellor continued: “There is a fear that the Bank of England, and I am not saying that I agree with it, but some people are concerned that the Bank of England is under pressure not to increase. interest rates because that could be very difficult for the government.
“The maturity period of public debts has been shortened, there is a lot of debt linked to inflation, which means that when inflation rises, the interest that the government has to pay is higher and higher. We spend something like £ 40 billion a year just to pay the interest on the public debt.
The former Tory MP for Kingston-upon Thames said: ‘Some people are concerned that the Bank of England will be pressured not to raise interest rates because it could be very difficult for the government’ (photo by Bank of England archive)
Lord Lamont also warned that the government’s policy of calling for an increase in wages could lead if the boost was not accompanied by an increase in productivity.
He said: “Wages that increase due to increased productivity… are a good thing.
“Merely raising wages on their own, calling for them to rise, will not increase productivity per se and could turn inflationary.”
Companies are increasingly passing costs on to consumers as the supply chain crisis wreaks havoc on the economy, with official figures revealing that one in 10 businesses have raised prices.
The ONS said its latest business survey showed that nearly a third (29) of businesses saw an above-normal increase in the cost of materials, goods and services – construction companies, service companies and manufacturing being the most affected.
The data showed that, among them, almost a quarter (23%) were retailers in the wholesale and consumer sectors and 25% in the manufacturing industry.
This follows wholesale gas prices soaring to an all-time high on Wednesday, although they fell after Russian President Vladimir Putin said the country would stabilize the market.
Soaring wholesale gas prices have already forced many small UK suppliers to close their doors
The latest Office for National Statistics (ONS) survey showed 10% of businesses said they raised the price of goods and services in early September (file photo)
Sectors ranging from the retail of cars and production of high-end fashionable toilet paper have warned of the price hikes.
In the retail industry, Next and Hotel Chocolat recently said they were increasing their prices in the face of cost pressure.
The ONS survey also showed that companies are struggling to fill vacant positions as staff shortages add to pricing issues.
It found that 41 percent of companies with 10 or more employees said vacancies were more difficult to fill last month compared to normal expectations for this time of year.
Of all the companies struggling to recruit, 18% said the number of European applicants has declined.
More than half (53%) said this was due to a lack of qualified candidates for the positions offered.